This Preliminary Official Statement and the information contained herein are subject to completion or amendment.

These securities may not be sold nor may offers to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances may this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor may there be any sale of these securities in any jurisdictions in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

PRELIMINARY OFFICIAL STATEMENT DATED JULY 17, 2013

THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION. NEW ISSUE FULL BOOK ENTRY NOT BANK QUALIFIED RATINGS: Moodys: ___ S&P: ___ See RATINGS

In the opinion of Special Tax Counsel, under existing law and assuming continued compliance with certain requirements of the Internal Revenue Code of 1986, as amended (the Code), (1) the interest on the Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, (2) the interest on the Bonds is exempt from Nebraska income taxation by the State of Nebraska and (3) the Bonds are not qualified tax-exempt obligations within the meaning of Section 265(b)(3) of the Code. See TAX MATTERS herein.

$25,000,000* THE CITY OF LINCOLN, NEBRASKA LIMITED TAX GENERAL OBLIGATION ARENA BONDS SERIES 2013
Dated: Date of Delivery Due: As shown on the inside cover The City of Lincoln, Nebraska (the City) is issuing the above-captioned bonds (the Bonds) in fully registered form which, when initially issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company (DTC), New York, New York. DTC is acting as securities depository for the Bonds. Purchases of the Bonds will be made initially in book-entry form only, in the principal amount of $5,000 or any integral multiple thereof, through brokers and dealers who are, or who act through, DTC Participants. Beneficial owners of the Bonds will not receive physical delivery of bond certificates so long as DTC or a successor acts as securities depository with respect to the Bonds. BOKF, National Association, Lincoln, Nebraska, is bond registrar and paying agent for the Bonds (the Registrar). The Registrar will pay scheduled interest on January 15 and July 15 of each year, beginning January 15, 2014*, until maturity or earlier redemption, and will pay scheduled principal on the dates and in the amounts set forth on the inside cover hereto. So long as DTC or its nominee is the registered owner of the Bonds, the Registrar will make all payments of the principal of and the interest on the Bonds directly to DTC. Disbursement of such payments to DTC Participants is the responsibility of DTC, and disbursement of such payments to the beneficial owners is the responsibility of the DTC Participants. For terms relating to principal and interest payments made to DTC or its nominee or in the event that the use of book-entry form is discontinued, see THE BONDS - Book-Entry System herein. The City is issuing the Bonds pursuant to the Convention Center Facility Financing Assistance Act, Section 13-2601 et seq., Reissue Revised Statutes of Nebraska, as amended (the Act) for the purpose of providing a portion of the funds necessary to pay (a) the costs of acquiring, constructing and/or furnishing of a sports/entertainment arena (the Arena Project), (b) pay interest on the Bonds through January 15, 2014 and (c) pay certain costs of issuing the Bonds. See PLAN OF FINANCE and ESTIMATED SOURCES AND USES OF FUNDS herein. The Bonds are general obligations of the City, and the full faith, credit and resources of the City are irrevocably pledged for the prompt payment of the principal of, premium, if any, and interest on the Bonds as the same become due. The City has further pledged the income, proceeds and revenue of the Projects described herein, the revenue and income of the City, including its sales, use, occupation and property tax revenues, the Citys fees or receipts and appropriations from the State of Nebraska (the State) received under the Act or other State source as security for the Bonds, to the extent legally available and appropriated for such purposes. If such moneys are insufficient to timely pay the principal of, premium, if any, and interest on the Bonds, the City will cause to be levied and collected annually a tax on all taxable property in the City sufficient in amount to pay the debt service on the Bonds until the same is fully paid; provided, however, that the City shall not levy such tax in excess of its statutory and Charter limits. See SECURITY, PLAN OF FINANCE and NEBRASKA LAWS RELATED TO BUDGETS AND TAXATION herein. ________________________________________________ MATURITY SCHEDULE SEE INSIDE COVER ________________________________________________ The Bonds maturing on or after July 15, 2024* are subject to optional redemption prior to maturity at any time on or after July 15, 2023* as set forth herein. Certain Bonds are subject to mandatory sinking fund redemption on the dates and in the amounts described herein. See THE BONDS - Redemption Provisions herein. The Bonds are offered in book entry form, when, as and if issued and received by the Underwriter, subject to the delivery of the opinion of Kutak Rock LLP, Omaha, Nebraska, Bond Counsel, as to the validity of the Bonds, and the delivery of the opinion of Gilmore & Bell, P.C., Lincoln, Nebraska, Special Tax Counsel, as to the tax-exempt status of the Bonds, and certain other conditions. It is expected that the Bonds will be available for delivery through DTC in New York, New York, on or about August 7, 2013. [NAME OF UNDERWRITER]

AMERITAS INVESTMENT CORP. has acted as Financial Advisor

The date of this Official Statement is ______________, 2013

Preliminary, subject to change.

MATURITY SCHEDULE*

$25,000,000 THE CITY OF LINCOLN, NEBRASKA LIMITED TAX GENERAL OBLIGATION ARENA BONDS SERIES 2013
Principal Amount $ 895,000 900,000 910,000 920,000 935,000 955,000 975,000 995,000 1,020,000 1,045,000 1,075,000 1,105,000 1,140,000 1,175,000 1,215,000 1,255,000 1,295,000 1,340,000 1,385,000 1,435,000 1,490,000 1,540,000 Interest Rate %

Type Serial Serial Serial Serial Serial Serial Serial Serial Serial Serial Serial Serial Serial Serial Serial Serial Serial Serial Serial Serial Serial Serial

Maturity Date July 15, 2016 July 15, 2017 July 15, 2018 July 15, 2019 July 15, 2020 July 15, 2021 July 15, 2022 July 15, 2023 July 15, 2024 July 15, 2025 July 15, 2026 July 15, 2027 July 15, 2028 July 15, 2029 July 15, 2030 July 15, 2031 July 15, 2032 July 15, 2033 July 15, 2034 July 15, 2035 July 15, 2036 July 15, 2037

Yield %

Price

CUSIP 534238 534238 534238 534238 534238 534238 534238 534238 534238 534238 534238 534238 534238 534238 534238 534238 534238 534238 534238 534238 534238 534238

Preliminary, subject to change.

THE CITY OF LINCOLN, NEBRASKA CITY OFFICIALS Mayor Christopher J. Beutler City Council Carl Eskridge (Chair) Leirion Gaylor Baird Jon Camp Jonathan Cook City Department Heads Steve Hubka............................................................................................................................. Interim Finance Director Rodney Confer...........................................................................................................................................City Attorney Marvin Krout ...................................................................................................................................... Planning Director Lynn Johnson...................................................................................................................Parks and Recreation Director Kevin Wailes .....................................................................................................................LES Administrator and CEO David Landis .................................................................................................................... Urban Development Director Pat Leach ...............................................................................................................................................Library Director Miki Esposito.......................................................................................................... Public Works and Utilities Director Judith Halstead ....................................................................................................................................... Health Director Tom Casady................................................................................................................................. Public Safety Director Doug McDaniel ................................................................................................................................. Personnel Director Jim Peschong ............................................................................................................................................... Police Chief John Huff .........................................................................................................................................................Fire Chief Fred Hoke ..........................................................................................................................Building and Safety Director Peggy Tharnish, City Controller FINANCIAL ADVISOR Ameritas Investment Corp. Lincoln, Nebraska BOND COUNSEL Kutak Rock LLP Omaha, Nebraska SPECIAL TAX COUNSEL Gilmore & Bell, P.C. Lincoln, Nebraska PAYING AGENT AND REGISTRAR BOKF, National Association Lincoln, Nebraska INDEPENDENT AUDITORS BKD, LLP Lincoln, Nebraska Roy Christensen Doug Emery Trent Fellers

TABLE OF CONTENTS Page INTRODUCTION ....................................................................................................................................................... 1 AUTHORITY.............................................................................................................................................................. 1 SECURITY.................................................................................................................................................................. 2 NEBRASKA LAWS RELATED TO BUDGETS AND TAXATION........................................................................ 2 PLAN OF FINANCING.............................................................................................................................................. 3 ESTIMATED SOURCES AND USES OF FUNDS ................................................................................................... 5 THE BONDS............................................................................................................................................................... 6 RATINGS.................................................................................................................................................................... 8 TAX MATTERS ......................................................................................................................................................... 8 CONTINUING DISCLOSURE................................................................................................................................... 9 LITIGATION ............................................................................................................................................................ 11 CERTAIN LEGAL MATTERS ................................................................................................................................ 11 INDEPENDENT AUDITORS .................................................................................................................................. 11 MISCELLANEOUS.................................................................................................................................................. 12 APPENDIX A ............................................................................................... THE CITY OF LINCOLN, NEBRASKA APPENDIX B...........................CITY OF LINCOLN, NEBRASKA ACCOUNTANTS REPORT AND AUDITED FINANCIAL STATEMENTS APPENDIX C....................................................................................................................... BOOK-ENTRY SYSTEM APPENDIX D ...........................................................................................................OPINION OF BOND COUNSEL APPENDIX E..............................................................................................OPINION OF SPECIAL TAX COUNSEL

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET, AND SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE BONDS HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR UNDER ANY STATE SECURITIES OR BLUE SKY LAWS. THE BONDS ARE OFFERED PURSUANT TOAN EXEMPTION FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION. No broker, dealer, sales representative or other person has been authorized by the City or the Underwriter to give any information or to make any representations with respect to the Bonds, other than those contained in this Official Statement, and if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been obtained from the City and other sources that are believed to be reliable, but is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by, the Underwriter. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstance, create any implication that there has been no change in the affairs of the City since the date hereof. FORWARD-LOOKING STATEMENTS Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as plan, expect, estimate, anticipate, budget, intend or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Neither the City nor any other party plans to issue any updates or revisions to those forward-looking statements if or when the expectations, or events, conditions or circumstances upon which such statements are based occur.

OFFICIAL STATEMENT $25,000,000* THE CITY OF LINCOLN, NEBRASKA LIMITED TAX GENERAL OBLIGATION ARENA BONDS SERIES 2013

INTRODUCTION This introduction is only a brief description and summary of certain information contained in this Official Statement, including the cover page and appendices hereto (the Official Statement), and is qualified in its entirety by reference to more complete and detailed information contained in the entire Official Statement, including the cover page and appendices thereto, and the documents summarized or described herein. A full review should be made of the Official Statement. This Official Statement is furnished by the City of Lincoln, Nebraska (the City), a home rule city of the primary class and political subdivision of the State of Nebraska (the State), to provide information about the City, the hereinafter-described Projects, and the Citys issuance of $25,000,000* in aggregate principal amount of its Limited Tax General Obligation Arena Bonds, Series 2013 (the Bonds). The City is issuing the Bonds for the purpose of providing a portion of the funds necessary to (a) pay a portion of the costs of acquiring, constructing, equipping and furnishing a sports/entertainment arena and related facilities and improvements (as more fully described herein, the Projects), (b) pay interest on the Bonds through January 15, 2014 and (c) pay certain costs of issuing the Bonds. The proceeds of the Bonds are being used together with the proceeds of certain bonds issued by The West Haymarket Joint Public Agency (the Agency). The Agency was created for the purpose of acquiring, constructing, equipping, furnishing and financing the Projects. See AUTHORITY, PLAN OF FINANCING and ESTIMATED SOURCES AND USES OF FUNDS herein. The Bonds are general obligations of the City, and the full faith, credit and resources of the City are irrevocably pledged for the prompt payment of the principal of, premium, if any, and interest on the Bonds as the same become due. The City has further pledged the income, proceeds and revenue of the Projects, the revenue and income of the City, including, without limitation, its sales, use, occupation and property tax revenues, the Citys fees or receipts and appropriations from the State received under the Act or other sources as security for the Bonds, to the extent legally available and appropriated for such purposes. See the captions SECURITY and NEBRASKA LAWS RELATED TO BUDGETS AND TAXATION herein. BOKF, National Association, Lincoln, Nebraska is bond registrar and paying agent for the Bonds (the Registrar), which will pay the principal of, premium, if any, and interest on the Bonds on the dates and in the amounts described herein. See THE BONDS herein. Descriptions of and references to the Bonds, the Bond Ordinance (defined herein), related transaction documents and other matters do not purport to be comprehensive or definitive and are qualified in their entirety by reference to the complete texts thereof. Copies of such documents are available for inspection at the office of Ameritas Investment Corp., Lincoln, Nebraska, as financial advisor to the City (the Financial Advisor).

AUTHORITY The City is issuing the Bonds under the authority of the Convention Center Facility Financing Assistant Act, Section 13-2601 et seq., Reissue Revised Statutes of Nebraska, as amended (the Act), Article IX, Sections 39 to 43, inclusive, of the Home Rule Charter of the City (the Charter), and an ordinance passed by the Council on March 4, 2013 and subsequently approved by the Mayor (the Bond Ordinance). A proposition authorizing the issuance of general obligation bonds of the City in an amount not to exceed $25,000,000 for the purpose of paying a portion of the costs relating to the acquisition, construction, equipping and furnishing of a sports/entertainment arena and related facilities was approved by a vote of 37,541 in favor of (approximately 57%) and 28,792 opposed to the question at an election held in the City on May 11, 2010 (the Bond Election). The proposition further authorized

the City to pay the Bonds from the income, proceeds and revenue of the Projects, the revenue and income of the City, including its sales, use, occupation and property tax revenues, the Citys fees or receipts and appropriations from the State received under the Act or other State source as security for the Bonds; provided, however, that any property tax levied to pay debt service on the Bonds, when taken together with all other taxes now or hereafter authorized to be levied by the City (excluding certain tax levies relating to other bonds approved by law and not subject to the herein-after described Levy Limitations), may not exceed 45 per $100 of taxable valuation within the City. See SECURITY and NEBRASKA LAWS RELATED TO BUDGETS AND TAXATION herein.

SECURITY The Bonds are limited tax general obligations of the City, and the full faith, credit and resources of the City are irrevocably pledged for the prompt payment of the principal of, premium, if any, and interest on the Bonds as the same become due. In the Bond Ordinance the City has pledged the income, proceeds and revenue of the Projects, the revenue and income of the City, including, without limitation, its sales, use, occupation and property tax revenues, the Citys fees or receipts and appropriations from the State received under the Act or other State source as security for the Bonds, to the extent legally available and appropriated for such purposes. If such moneys are insufficient to timely pay the principal of, premium, if any, and interest on the Bonds, the City will cause to be levied and collected annually a tax on all taxable property in the City sufficient in amount to pay the debt service on the Bonds until the same is fully paid; provided, however, that the City shall not levy such tax in excess of its statutory and Charter limits. See NEBRASKA LAWS RELATED TO BUDGETS AND TAXATION and PLAN OF FINANCING State Turnback Tax herein. Among other factors affecting an investment in the Bonds, potential investors should be aware that the United States Bankruptcy Code enables debtors (including municipalities such as the City) that are insolvent to obtain relief through a petition and plan that may result in the modification or delay of payments to creditors, including registered owners of the Bonds. In the event the City becomes insolvent, the registered owners of the Bonds would be treated as general creditors of the City along with all other unsecured claimants. The extent to which the exception from limitations upon overall tax rates provided for in existing legislation might entitle registered owners of the Bonds to be treated as a separate class or otherwise given priority over other unsecured claimants is a matter that would be subject to future determinations of state and federal courts interpreting and applying both state law and the provisions of the United States Bankruptcy Code. Procedures under the United States Bankruptcy Code or other insolvency laws could result in delays in payment and modifications of payment rights. The State has authorized its political subdivisions to seek relief under the United States Bankruptcy Code.

NEBRASKA LAWS RELATED TO BUDGETS AND TAXATION One of Citys principal sources of revenue for its general fund is local property taxes. Local property taxes constitute the Citys second largest revenue source, but are subject to certain limitations as discussed below. The system of assessing and taxing personal property by the State for purposes of local ad valorem taxation for support of local political subdivisions, including the City, has from time to time been the object of controversy, legal challenges, constitutional initiative petitions and legislative action. The Nebraska Legislature (the Legislature) has enacted legislation intended to reduce the level of expenditures and property taxes by political subdivisions in the State. Sections 13-518 to 13-522, inclusive, Reissue Revised Statutes of Nebraska, as amended, and related sections (collectively, the Budget Limitations), limit the increase of certain restricted funds that may be budgeted by governmental units such as the City. Such restricted funds include property taxes, sales taxes and other funding sources comprising approximately 75% of funding sources used to fund the Citys tax supported budget, but exclude restricted funds pledged to retire bonded indebtedness. The Budget Limitations currently provide for a base limitation of 2.5% or the increase in the tax base provided by new construction, improvements to existing property, annexations, and new personal property added to the property tax base, whichever is greater. The base limitation is subject to review by the Legislature from year to year and may be exceeded by an additional 1% upon an affirmative vote of at least 75% of the governing body. The Budget Limitations are enforced through the office of the Auditor of Public Accounts of the State and State aid may be withheld from governmental units that fail to comply. The Budget Limitations do not apply to the revenues of proprietary funds except to the extent such revenues are used for general fund purposes. Further, the Budget Limitations do not apply to revenue pledged to retire bonded indebtedness, such as the Bonds.

For the 2012-2013 fiscal year, the City was permitted to increase its appropriation of restricted funds under the Budget Limitations by 3.5%. Unused restricted fund authority from prior years can be carried over into future fiscal years to use in addition to the annual increases allowed. As of August 31, 2012, the City had accumulated $9,362,458.32 of unused restricted funds authority which would be available for future fiscal years. The Legislature has also enacted Section 77-3442, Reissue Revised Statutes of Nebraska, as amended, and related sections (collectively, the Levy Limitations), to provide overall limitations on the property tax levies of political subdivisions, including the City. The Levy Limitations expressly exclude any property taxes levied for bonded indebtedness. The maximum levy for the City is presently set at 45 per $100 of taxable valuation with an additional 5 per $100 of taxable valuation available to provide for the Citys share of revenue required under any agreement executed by the City with another governmental unit pursuant to the Interlocal Cooperation Act or the Joint Public Agency Act. The Citys current levy (excluding its bond levy) is 28.161 per $100 of taxable valuation on all the taxable property within the City. In general, State law provides that ad valorem taxes levied to pay debt service on bonded indebtedness are not subject to the Levy Limitations. At the Bond Election, the voters authorized the City to pay debt service on the Bonds from property taxes as well as other legally available sources of the City. However, the voter-approved proposition specified that the City could not levy property taxes in excess of its statutory levy limitation (i.e., 45 per $100 of valuation upon all of the taxable property in the City) to pay the principal of and the interest on the Bonds. Consequently, any tax levied by the City to pay debt service on the Bonds, together with all other taxes now or hereafter authorized to be levied by the City (excluding certain tax levies relating to other bonds approved by law and not subject to the Levy Limitations), may not exceed 45 per $100 of taxable valuation with an additional 5 per $100 of taxable valuation available to provide for the Citys share of revenue required under any agreement executed by the City with another governmental unit pursuant to the Interlocal Cooperation Act or the Joint Public Agency Act. Future legislation, decisions of the Nebraska Supreme Court, or initiative petitions proposed and passed by qualified voters in the State may alter the Budget Limitations and the Levy Limitations, or may otherwise modify the sources of and limitations on the revenues used by governmental units in the State to finance their activities.

PLAN OF FINANCING The Agency The West Haymarket Joint Public Agency was created pursuant to (a) the Joint Public Agency Act (Chapter 13, Article 23, Reissue Revised Statutes of Nebraska, as amended, the JPA Act) and (b) the Joint Public Agency Agreement Creating the West Haymarket Joint Public Agency, dated as of April 1, 2010, between the City and The Board of Regents of the University of Nebraska (the Regents), as amended and supplemented from time to time, including, without limitation, the Amended and Restated Joint Public Agency Agreement of the West Haymarket Joint Public Agency, dated January 10, 2011 (collectively, the JPA Agreement), between the City and the Regents. Under the JPA Agreement, the governing body of the Agency (the Board) consists of the Mayor of the City, the member of The Board of Regents of the University of Nebraska from District No. 1, and a member of the Council of the City appointed by the Mayor. All actions may be taken by the affirmative vote of a majority of the Board, except that the actions of the Agency related to the hereinafter-described Arena (as opposed to the hereinafter-described West Haymarket Facilities as a whole) require a unanimous vote of the Board. Issuance of indebtedness of the Agency must also be approved by the Mayor and Council of the City. The Agency was created (a) for purposes of constructing, equipping, furnishing and financing public facilities in the West Haymarket Redevelopment Area (herein defined) of the City including, but not limited to, a sports/entertainment arena (the Arena), roads, streets, sidewalks, pedestrian overpass, public plaza space, sanitary sewer mains, water mains, electric transmission lines, drainage systems, flood control, parking garages and surface parking lots (collectively, the West Haymarket Facilities), and (b) to acquire land and to relocate existing businesses, to undertake environmental remediation and site preparation as necessary and appropriate for the construction, equipping, furnishing and financing of the West Haymarket Facilities. The West Haymarket Redevelopment Area pertains to the redevelopment of an area in the City generally bounded by the Burlington Northern Santa Fe (BNSF) and Union Pacific railroad lines and First Street on the west, approximately Ninth Street and I-180 on the east, Cornhusker Highway on the north and M Street on the south.

The Projects The Projects consist of constructing, equipping, furnishing and financing various public facilities in the West Haymarket Redevelopment Area of the City including, but not limited to, the Arena, roads, streets, sidewalks, pedestrian overpass, public plaza space, sanitary sewer mains, water mains, electric transmission lines, drainage systems, flood control, parking garages and surface parking lots, and acquiring land and relocating existing businesses, undertaking environmental remediation and site preparation as necessary and appropriate for the construction, equipping, furnishing and financing of the West Haymarket Facilities. The Agency has acquired most of the property on which the Projects will be constructed, equipped and furnished from BNSF and Union Pacific Railroads and other Third Party Owners. The Agency has entered into an agreement with BNSF to purchase the remainder of the property for the Projects. The Arena Projects (consisting of the Arena and related parking improvements consisting of the surface parking lot northwest of the BNSF tracks, the parking garage adjacent to the Arena and the surface parking lot on the Arena site) will be owned by the Agency until the Bonds are no longer outstanding, at which time the Agency will transfer ownership of the Arena Projects to the City. The remaining Projects will be transferred to the City upon the completion of construction of such Projects. The City will operate and maintain all of the Projects pursuant to a Facilities Agreement dated September 8, 2010 (the Facilities Agreement) between the City and the Agency. The total estimated cost of phase 1 of the Projects is approximately $343,000,000, of which $300,000,000 was or is expected to be funded from the net proceeds of the Agencys bonds and $25,000,000 of which is being funded with the proceeds of the Bonds. The estimated cost of phase 2 of the Projects is approximately $29,000,000, which is expected to be funded with the net proceeds of the Agencys bonds. The Arena is expected to open in September, 2013. The following table is a summary of certain approximated, anticipated costs of phase 1 and phase 2 of the Projects: Phase 1 Arena and attached garage Site Purchase Parking Roads Environmental General Coordination Dirt Moving Bond Related Costs Other (ITS/Civic Art Utilities Pedestrian Ways Contingency

178,806,341 62,485,655 29,424,527 24,282,201 6,813,050 6,674,522 6,063,449 5,160,000 3,326,827 1,998,940 1,424,060 16,003,350 342,462,922

Phase 2 Parking Bond Related Costs General Coordination Contingency

26,935,000 422,598 360,000 1,364,750 29,082,348

State Turnback Tax Under the Act, any political subdivision that has acquired, constructed, improved, or equipped or has approved a general obligation bond issue to acquire, construct, improve, or equip convention and meeting center facilities and sports arena facilities (Eligible Facilities) for operation within the State may apply for State assistance. State assistance (referred to herein as the State Turnback Tax) consists of a portion of (a) the State sales tax revenue collected by retailers and operators doing business at such Eligible Facilities on sales at such facilities, (b) the State sales tax revenue collected on primary and secondary box office sales of admissions to such Eligible Facilities and (c) the State sales tax revenue collected by associated hotels (as defined in the Act). The State Turnback Tax may be used to pay back amounts expended or borrowed through one or more issues of bonds to be expended by the 4

political subdivision to acquire, construct, improve and equip Eligible Facilities until repayment in full of the amounts expended or borrowed by the political subdivision, including the principal of and interest on bonds, for such Eligible Facilities. The City has applied for and has been approved for State Turnback Tax financing, and the City expects to apply any State Turnback Tax receipts to (i) pay the principal of, any premium, and the interest on the Bonds and (ii) repay any expenditures relating to the acquisition, construction, improvement or equipping of the Arena. In connection with an approved application for the State Turnback Tax, the State Tax Commissioner shall annually (a) audit or review audits of the approved convention and meeting center facility, sports arena facility, or associated hotel to determine the State sales tax revenue collected by retailers and operators doing business at the Eligible Facilities on sales at such facilities, the State sales tax revenue collected on primary and secondary box office sales of admissions to such Eligible Facilities, and the State sales tax revenue collected by associated hotels, and (b) certify annually to the State Treasurer the amount of State sales tax revenue collected by retailers and operators doing business at such Eligible Facilities on sales at such facilities, the State sales tax revenue collected on primary and secondary box office sales of admissions to such Eligible Facilities, and the State sales tax revenue collected by associated hotels. The State Treasurer shall deposit all moneys certified to him or her in the Convention Center Support Fund established pursuant to the Act. The Act provides further that it is the intent of the Legislature to appropriate from the Convention Center Support Fund to any political subdivision for which an application for state assistance under the Act has been approved an amount not to exceed (i) 70% of the State sales tax revenue audited by the State Tax Commissioner and certified to the State Treasurer, (ii) $75 million for any one approved Eligible Facility, or (iii) the total cost of acquiring, constructing, improving, or equipping the Eligible Facility. State assistance shall not be used for an operating subsidy or other ancillary facility. Consequently, each year the State must separately approve the appropriate amount of the State Turnback Tax to be returned to the City based upon actual operating data from the Arena and any associated hotels. Therefore, the payment by the State of the State Turnback Tax each year is subject to the risk of annual appropriation and the level of operation of the Arena and any associated hotels. Further, the Act specifically provides that it may be repealed by the State (although no such repeal is expected by the City). The City expects to begin receiving the State Turnback Tax in 2015 and estimates that the State cap of $75 million will not be reached or needed. No assurance can be given that any estimates made herein are accurate or correct.

ESTIMATED SOURCES AND USES OF FUNDS SOURCES OF FUNDS: Principal Amount of Bonds TOTAL SOURCES OF FUNDS: USES OF FUNDS: Project Costs Capitalized Interest Costs of Issuance* TOTAL USES OF FUNDS: $____________ ____________ ____________ $ ____________ $25,000,000.00 $25,000,000.00

* Includes underwriting discount, legal fees, printing expenses and other miscellaneous expenses.

THE BONDS General The City is issuing the Bonds in fully registered, book-entry form with a date of original issue (the Date of Original Issue) of their date of delivery. The Bonds will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (DTC). DTC is acting as the initial securities depository for the Bonds. Purchases of Bonds are being made in book-entry-only form, in principal amounts of $5,000 or any integral multiple thereof, through brokers and dealers who are, or who act through, DTC Participants (as defined herein). Beneficial owners of the Bonds will not receive physical delivery of bond certificates so long as DTC or a successor acts as the securities depository with respect to the Bonds. See THE BONDSBook-Entry System herein. The Bonds bear interest from the later of the Date of Original Issue or the most recent Interest Payment Date (as defined herein), which is payable on January 15 and July 15 of each year, commencing January 15, 2014* (each, an Interest Payment Date), until maturity or earlier redemption, mature on July 15 in the years and in the principal amounts, and bear interest at the rates (calculated on the basis of a 30-day month and a 360-day year) as set forth on the inside cover page of this Official Statement. The Registrar will pay each installment of interest by check or draft mailed on the due date thereof (or on the next business day if such due date falls on a Saturday, Sunday or bank holiday applicable to the Registrar) to the registered owner of a Bond as shown on the bond registration records of the City maintained by the Registrar as of the 15th day (whether a business day or not) next preceding such interest payment date (the Record Date). The principal of each Bond will be payable upon the surrender of such Bond to the Registrar. The foregoing procedures and methods for payment will apply if the provisions for global book-entry bonds as described below cease to be in effect and will apply to the holding and transfer of Bonds by DTC subject to certain modifications provided for in a Letter of Representations between the City and DTC. SO LONG AS DTC OR ITS NOMINEE IS THE REGISTERED OWNER OF THE BONDS, PAYMENT OF THE PRINCIPAL THEREOF AND THE INTEREST THEREON WILL BE MADE DIRECTLY TO DTC. See THE BONDSBook-Entry System herein. Book-Entry System General. DTC is acting as securities depository for the Bonds. The ownership of one fully registered Bond for each maturity, as set forth on the cover page of this Official Statement, each in the aggregate principal amount of such maturity, will be registered in the name of Cede & Co., as the nominee for DTC. Ownership interests in the Bonds will be available to purchasers only through a book-entry system maintained by DTC (the Book-Entry System). A description of DTC, the Book-Entry System and definitions of initially capitalized terms used herein are found in APPENDIX C - BOOK-ENTRY SYSTEM to this Official Statement. Risk Factors. Beneficial Owners of the Bonds may experience some delay in their receipt of distributions of the principal or redemption price of and interest on the Bonds because such distributions will be forwarded by the Registrar to DTC, credited by DTC to its Direct Participants, and then credited to the accounts of the Beneficial Owners either directly or indirectly through Indirect Participants. Because transactions in the Bonds can only be effected through DTC, DTC Participants and certain banks, the ability of a Beneficial Owner to pledge Bonds to persons or entities that do not participate in the Book-Entry System, or otherwise to take actions in respect of such Bonds, may be limited due to the lack of physical certificates. Beneficial Owners will not be recognized by the Registrar as registered owners for purposes of the Bond Ordinance, and Beneficial Owners will be permitted to exercise the rights of registered owners only indirectly through DTC and DTC Participants. Interchangeability and Transfer The Bonds, upon surrender thereof to the Registrar with a written instrument of transfer satisfactory to the Registrar duly executed by the registered owner or its duly authorized attorney, may, at the option of the registered owner

Preliminary, subject to change.

thereof, be exchanged for an equal aggregate principal amount of Bonds in registered form of the same series, rate of interest, maturity and of any authorized denomination. In all cases in which the privilege of exchanging or transferring the Bonds is exercised, the City shall execute and the Registrar shall deliver the Bonds in accordance with the Bond Ordinance. For every such transfer or exchange of Bonds, the Registrar shall require the payment by the registered owner requesting such transfer or exchange of any tax or other governmental charges payable with respect thereto, and may charge a sum not exceeding the actual cost for each new Bond. Neither the City nor the Registrar is required to make any such exchange or registration of transfer of Bonds during the period between a Record Date and the next succeeding interest payment date or, in the case of any proposed redemption of Bonds, after notice of the redemption of such Bonds or any portion thereof shall have been given pursuant to the Bond Ordinance. The foregoing procedures do not apply to Beneficial Owners, whose transfer and exchange privileges will be governed by the procedures described under THE BONDS - Book-Entry System so long as the Bonds are held in book-entry format. Mandatory Sinking Fund Redemption* The Bonds maturing on July 15, 20___ (the 20___ Term Bonds) are subject to mandatory sinking fund redemption prior to maturity in part on July 15 in each of the following years and the following amounts, at a redemption price equal to the principal amount so called for redemption plus accrued interest to such date of redemption, but without premium. Selection of portions of 20___ Term Bonds to be redeemed shall be in the sole discretion of the Registrar. Year (July 15) Principal Amount $

* *Final Maturity The Bonds maturing July 15, 20___ (the 20___ Term Bonds) are subject to mandatory sinking fund redemption prior to maturity in part on July 15 in each of the following years and the following amounts, at a redemption price equal to the principal amount so called for redemption plus accrued interest to such date of redemption, but without premium. Selection of portions of 20___ Term Bonds to be redeemed shall be in the sole discretion of the Registrar. Year (July 15) Principal Amount $

* *Final Maturity Optional Redemption* Bonds maturing on or prior to July 15, 2023 are not subject to redemption prior to their stated maturities. Bonds maturing on or after July 15, 2024 are subject to redemption prior to maturity at the option of the City in whole or in part, at any time on or after July 15, 2023 in such principal amounts and from such maturity or maturities as the City shall specify and by lot in integral multiples of $5,000 within a maturity at a redemption price equal to 100% of the

Preliminary, subject to change.

principal amount then being redeemed, together with accrued interest on such principal amount to the date fixed for redemption. Notice and Effect of Call for Redemption In the event of any such redemption, the Registrar will give written notice of the Citys intention to redeem and pay such Bonds by first-class mail to the registered owner of each Bond to be redeemed, such notice to be mailed not less than 30 days prior to the redemption date. Notice of redemption having been given as stated above, the Bonds or portions of Bonds to be redeemed shall become due and payable on the redemption date, at the redemption price therein specified, and from and after the redemption date (unless the City defaults in the payment of the redemption price) such Bonds or portion of Bonds shall cease to bear interest. Failure to give notice to any particular registered owner or any defect in the notice given to such owner shall not affect the validity of the proceedings calling the Bonds or the redemption of any Bonds for which proper notice has been given. The City shall have the right to direct further notice of redemption for any Bond for which defective notice has been given. Notice of redemption may be waived in writing by the registered owner of any Bond. So long as DTC is effecting book-entry transfers of the Bonds, the Registrar will provide the notices of Bonds to be redeemed to DTC. It is expected that DTC will, in turn, notify the DTC Participants and that the DTC Participants, in turn, will notify or cause to be notified the Beneficial Owners. Any failure on the part of DTC or a DTC Participant, or failure on the part of a nominee of a Beneficial Owner of a Bond (having been mailed notice from the Registrar, a DTC Participant or otherwise) to notify the Beneficial Owner of the Bond so affected, will not affect the validity of the redemption of such Bond.

RATINGS Moodys Investors Service has assigned the Bonds the rating of _____ and Standard & Poors, a division of The McGraw-Hill Companies, has assigned the Bonds the rating of _____. Such ratings reflect only the views of such organizations, and explanations of the significance of such ratings may be obtained from Moodys Investors Service, 7 World Trade Center, 350 Greenwich Street, 23rd Floor, New York, New York 10007, telephone (212) 553-0300, and Standard & Poors Ratings Services, 55 Water Street, New York, New York, 10041, telephone (212) 438-2124. Generally, rating agencies base their ratings on such information and materials and investigations, studies and assumptions furnished to and obtained and made by the rating agencies. The debt ratings are not a recommendation to purchase, sell or hold a security, inasmuch as they do not comment as to market price or suitability for a particular investor. There is no assurance that the above ratings will remain for any given period of time or that they may not be lowered, suspended or withdrawn entirely by either or both rating services if they deem circumstances are appropriate. Any downward change in, suspension or withdrawal of either or both ratings may have an adverse effect on the market price of the Bonds.

TAX MATTERS The following is a summary of the material Federal and State of Nebraska income tax consequences of holding and disposing of the Bonds. This summary is based upon laws, regulations, rulings and judicial decisions now in effect, all of which are subject to change (possibly on a retroactive basis). This summary does not discuss all aspects of federal income taxation that may be relevant to investors in light of their personal investment circumstances or describe the tax consequences to certain types of owners subject to special treatment under the Federal income tax laws (for example, dealers in securities or other persons who do not hold the Bonds as a capital asset, tax-exempt organizations, individual retirement accounts and other tax deferred accounts, and foreign taxpayers), and, except for the income tax laws of the State of Nebraska, does not discuss the consequences to an owner under any state, local or foreign tax laws. The summary does not deal with the tax treatment of persons who purchase the Bonds in the secondary market. Prospective investors are advised to consult their own tax advisors regarding federal, state, local and other tax considerations of holding and disposing of the Bonds.

Opinion of Bond Counsel In the opinion of Gilmore & Bell, P.C., Special Tax Counsel, under the law existing as of the issue date of the Bonds: Federal and Nebraska Tax Exemption. The interest on the Bonds is excludable from gross income for federal income tax purposes and is exempt from income taxation by the State of Nebraska. Alternative Minimum Tax. Interest on the Bonds is not an item of tax preference for purposes of computing the federal alternative minimum tax imposed on individuals and corporations, but is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. Bank Qualification. The Bonds have not been designated as qualified tax-exempt obligations within the meaning of Section 265(b)(3) of the Code. Special Tax Counsels opinions are provided as of the date of the original issue of the Bonds, subject to the condition that the City comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excludable from gross income for federal income tax purposes. The City has covenanted to comply with all such requirements. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal and Nebraska income tax purposes retroactive to the date of issuance of the Bonds. Special Tax Counsel is expressing no opinion regarding other federal, state or local tax consequences arising with respect to the Bonds but has reviewed the discussion under this heading TAX MATTERS. Other Tax Consequences Sale, Exchange or Retirement of Bonds. Upon the sale, exchange or retirement (including redemption) of a Bond, an owner of the Bond generally will recognize gain or loss in an amount equal to the difference between the amount of cash and the fair market value of any property received on the sale, exchange or retirement of the Bond (other than in respect of accrued and unpaid interest) and such owners adjusted tax basis in the Bond. To the extent a Bond is held as a capital asset, such gain or loss will be capital gain or loss and will be long-term capital gain or loss if the Bond has been held for more than 12 months at the time of sale, exchange or retirement. Reporting Requirements. In general, information reporting requirements will apply to certain payments of principal, interest and premium paid on the Bonds, and to the proceeds paid on the sale of the Bonds, other than certain exempt recipients (such as corporations and foreign entities). A backup withholding tax will apply to such payments if the owner fails to provide a taxpayer identification number or certification of foreign or other exempt status or fails to report in full dividend and interest income. The amount of any backup withholding from a payment to an owner will be allowed as a credit against the owners federal income tax liability. Collateral Federal Income Tax Consequences. Prospective purchasers of the Bonds should be aware that ownership of the Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, individual recipients of Social Security or Railroad Retirement benefits, certain S corporations with excess net passive income, foreign corporations subject to the branch profits tax, life insurance companies, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry or have paid or incurred certain expenses allocable to the Bonds. Special Tax Counsel expresses no opinion regarding these tax consequences. Purchasers of Bonds should consult their tax advisors as to the applicability of these tax consequences and other federal income tax consequences of the purchase, ownership and disposition of the Bonds, including the possible application of state, local, foreign and other tax laws.

CONTINUING DISCLOSURE The City is executing a Continuing Disclosure Certificate (the Disclosure Certificate) for the benefit of the owners and Beneficial Owners of the Bonds and in order to assist the Underwriter in complying with Rule 15c2-12

of the Securities and Exchange Commission (the Rule). The City is the only obligated person within the meaning of the Rule with responsibility for continuing disclosure. The City is presently in compliance with each prior undertaking made pursuant to the Rule and has not failed to comply with any such undertaking during the past five years. Annual Reports Pursuant to the Disclosure Certificate, the City shall, not later than May 1 of each year, commencing May 1, 2014, provide to the Municipal Securities Rulemaking board (MSRB) the following financial information and operating data (the Annual Report): (a) The audited financial statements of the City for the prior fiscal year, prepared in accordance with generally accepted principles. If audited financial statements are not available by the time the Annual Report is required to be filed, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement relating to the Bonds, and the audited financial statements shall be filed in the same manner as the Annual Report promptly after they become available. Updates of the end of the fiscal year of the financial information and operating data relating to the City contained in APPENDIX A of this Official Statement in substantially the same format contained in this Official Statement.

(b)

Listed Event Notices Pursuant to the Disclosure Certificate, not later than 10 business days after the occurrence of any of the following events, the City shall also give, or cause a dissemination agent to give, notice of the occurrence of any of the following events with respect to the bonds (Listed Events): (1) (2) (3) (4) (5) (6) principal and interest delinquencies; non-payment related defaults, if material; unscheduled draws on debt service reserves reflecting financial difficulties; unscheduled draws on credit enhancements reflecting financial difficulties; substitution of credit or liquidity providers, or their failure to perform; adverse tax opinions; the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the Bonds, or other material events affecting the tax status of the Bonds; modifications to rights of bondowners, if material; bond calls, if material, and tender offers; defeasances; release, substitution or sale of property security repayment of the Bonds, if material; rating changes; bankruptcy, insolvency, receivership or similar event of the City; the consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all of the assets of the City, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such action, other than pursuant to its terms, if material; and definitive agreement relating to any such actions, other than pursuant to its terms, if material; and appointment of a successor or additional trustee or the change of name of the trustee, if material.

(7) (8) (9) (10) (11) (12) (13)

(14)

If a dissemination agent has been instructed by the City to report the occurrence of a Listed Event, the dissemination agent shall promptly file a notice of such occurrence with the MSRB, with a copy to the City. The City may, from time to time, appoint or engage a dissemination agent to assist it in carrying out its obligations under the Disclosure Certificate, and may discharge any such dissemination agent, with or without appointing a successor dissemination agent. The dissemination agent shall not be responsible in any manner for the content of any notice or report prepared by the Agency pursuant to the Disclosure Certificate.

10

Notwithstanding any other provision of the Disclosure Certificate, the City may amend the Disclosure Certificate and any provision of the Disclosure Certificate may be waived, provided Bond Counsel or other counsel experienced in federal securities law matters provides the City with its opinion that the undertaking of the City, as so amended or after giving effect to such waiver, is in compliance with the Rule and all current amendments thereto and interpretations thereof that are applicable to the Disclosure Certificate. In the event of a failure of the City, or any dissemination agent, to comply with any provision of the Disclosure Certificate, any Owner or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause the City, or any dissemination agent, to comply with its obligations under the Disclosure Certificate. A default under the Disclosure Certificate shall not be deemed an Event of Default under the Bond Ordinance, and the sole remedy under the Disclosure Certificate in the event of any failure of the City, or any dissemination agent, to comply with the Disclosure Certificate shall be an action to compel performance. Electronic Municipal Market Access System (EMMA) All Annual Reports and notices of Listed Events required to be filed by the City or the dissemination agent pursuant to the Disclosure Certificate must be submitted to the MSRB through the MSRBs Electronic Municipal Market Access system (EMMA). EMMA is an internet-based, online portal for free investor access to municipal bond information, including offering documents, listed event notices, real-time municipal securities trade prices and MSRB education resources, available at www.emma.msrb.org. Nothing contained on EMMA relating to the City or the Bonds is incorporated by reference in this Official Statement.

LITIGATION As of the date of this Official Statement there is, and as of the date of delivery of the Bonds there will be, no litigation, suit or other proceeding of any kind pending, or to our knowledge threatened, (a) seeking to restrain or enjoin the issuance or delivery of the Bonds, or (b) contesting, disputing or affecting in any way (1) the legal organization of the City or its boundaries, (2) the right or title of any of its officers to their respective offices, (3) the legality of any of its official acts shown to have been done in the Transcript of Proceedings, (4) the constitutionality or validity of the Bonds or the indebtedness represented by the Bonds, or any of the proceedings had in relation to the authorization, issuance or sale thereof, (5) the legality, validity or enforceability of the Bond Ordinance or any related documents, (6) the power and authority of the City to secure the Bonds in the manner provided for in the Bond Ordinance, including the levy of ad valorem taxes, which will provide money sufficient in rate and amount to assure, together with any other funds of the City available for such purposes, the payment in full, and when due, of the principal of, premium, if any, and interest on the Bonds, or to utilize any other such money lawfully available to pay such debt service on the Bonds, when and as the same shall become due, or (7) the federal or State tax-exempt status of the interest on the Bonds, or (c) that could have a material adverse effect on the financial condition or operations of the City or its ability to make payments on the Bonds or to perform its agreements and obligations under the Bond Ordinance or any related documents.

LEGAL MATTERS All legal matters incident to the authorization and issuance of the Bonds are subject to the approval of Kutak Rock LLP, Omaha, Nebraska, Bond Counsel, and Gilmore & Bell, P.C., Lincoln, Nebraska, Special Tax Counsel. The opinion of Bond Counsel is attached hereto as APPENDIX D. The opinion of Special Tax Counsel is attached hereto as APPENDIX E. Certain legal matters will be passed upon for the City by Rodney M. Confer, City Attorney.

INDEPENDENT AUDITORS The financial statements and schedules of the City as of and for the year ended August 31, 2012, with summarized financial information as of and for the year ended August 31, 2011, included in APPENDIX B THE CITY OF LINCOLN, NEBRASKA ACCOUNTANTS REPORT AND AUDITED FINANCIAL STATEMENTS, have been audited by BKD LLP, independent auditors, as stated in their report appearing herein. The City did not

11

request BKD LLP to perform any updating procedures subsequent to the date of its audit report on the August 31, 2012 financial statements.

MISCELLANEOUS All estimates and assumptions herein have been made on the basis of the best information available and are believed to be reliable, but no representations whatsoever are made that such estimates or assumptions are current or will be realized. So far as any statements herein involve matters of opinion, whether or not expressly so stated, they are intended merely as such and not as representations of fact. The information set forth in this Official Statement should not be construed as representing all of the conditions affecting the City or the Bonds. This Official Statement is issued by the City. THE CITY OF LINCOLN, NEBRASKA

By: Title:

Interim Finance Director

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APPENDIX A

CITY OF LINCOLN, NEBRASKA

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THE CITY OF LINCOLN General Lincoln, the capital of Nebraska, is located in southeastern Nebraska near the center of population of the state. The City was originally incorporated in 1869. It is approximately midway between Chicago and Denver. It has an area of 91.76 square miles, and in its growth and development has annexed five other municipalities so that the City includes most of the urban area of Lancaster County. It enjoys a unique position in Nebraska as the center of the state governmental and educational activities. Population The 1980 population of the City was 171,932; the 1990 population was 191,972; the 2000 population was 225,588; and the 2010 population was 258,379, a 14.5 percent increase over the 2000 count. The 2010 count represents 90.5 percent of the population of Lancaster County, the county in which the City is located. The estimated 2012 population is 262,341. City Government The City, operating under a home rule charter, has a mayor-council form of government with an elected full-time chief executive, the Mayor, and an elected legislative body, the Council, composed of seven members. Three are elected at large and four by district on a nonpartisan basis for a term of four years. The administration of City government is performed under the direction of the Mayor by administrative departments. City government has a broad range of responsibilities, including electric, water, and sanitary sewer systems, and an impressive park and playground system of over 6,503 acres maintained for public use, nine public swimming pools, and five public golf courses. The City has cooperated actively with the county government in several joint governmental buildings, and in other specific areas of responsibility, including health, planning, civil defense, data processing, tax collection, parks, and jail facilities. There are cooperative agreements with the United States government on parks and flood control, with the University of Nebraska on planning and property transfer, with the area Watershed District on flood control, and with the Lincoln School District on recreation. Transportation The Lincoln metropolitan area is served by Interstate 80, and U.S. Highways 2, 6, 34, and 77. Lincoln is served by two commercial airports with daily shuttle service available between locations. The Lincoln Municipal Airport is located less than 10 minutes from downtown and has daily departures to Atlanta, Chicago, Denver, Memphis, and Minneapolis. Eppley Airfield, located in east Omaha, is 65 minutes from downtown Lincoln and offers service from 22 airlines. Together the two airports offer more than 100 arrivals and departures daily. The Lincoln Municipal Airport also offers General Aviation services. The General Aviation runway is 8,649 feet long, and the runway is lit dusk to dawn. Railroad transportation facilities include those of Burlington Northern/Santa Fe and Union Pacific, both maintaining yards in Lincoln. AMTRAK provides daily passenger and package express services. Ground transportation is furnished by Greyhound/Black Hills Stage Lines, multiple taxi companies and local StarTran bus services. The average commute in Lincoln is 19 minutes and nearly 18 percent of area commuters spend less than 10 minutes on the road. Government Center The State Capitol, an architectural achievement located in Lincoln, is considered one of the most impressive in all the 50 states. Other state governmental facilities in the City include the Nebraska Educational Telecommunications facility, the Nebraska Game and Parks Commission headquarters, the Lincoln Regional Center (state hospital), and the Nebraska Penal Complex. Federal agencies in Lincoln include regional offices of the U.S. Department of Agriculture (Mid-West Regional Technical Service Center), the Immigration & Naturalization Service and the Veterans Administration, as well as the state offices of other federal agencies. There is also a U.S. Veterans Medical Facility. Lancaster County offices are also located in Lincoln, the county seat.

A-1

Education The University of Nebraska, with approximately 24,610 students, Nebraska Wesleyan University, with approximately 2,138 students, Union College, with approximately 901 students, Kaplan University, with approximately 690 students and Southeast Community College, with approximately 12,242 students and with a number of facilities for both full-time and part-time occupational training, are located in the City of Lincoln. The City's modern and progressive school system, with an enrollment of over 36,902 is served by 6 high schools, 11 middle schools, and 37 elementary schools. Lincoln is home to nearly 30 private and parochial schools. Lincoln's private school offerings range from pre-K to high school institutions. Affiliations include Roman Catholic, Lutheran, SDA, and nondenominational Christians. Building Permits and Property Values
LAST TEN YEARS COMMERCIAL 1 CONSTRUCTION FISCAL # YEAR PERMITS VALUE 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003
1 2

RESIDENTIAL 1 CONSTRUCTION # PERMITS VALUE 2,319 $ 2,336 2,225 1,794 2,261 2,820 3,150 3,387 3,846 3,913 186,712,560 $ 155,181,140 116,914,465 104,316,385 149,678,215 202,786,768 195,885,622 277,158,200 321,126,701 315,662,242

PROPERTY VALUE 2 COMMERCIAL RESIDENTIAL 4,476,953,562 $ 4,477,256,519 4,438,463,100 4,382,749,195 4,246,365,596 4,236,340,817 3,814,534,869 3,694,097,147 3,598,787,015 3,094,988,486 10,745,000,908 10,648,151,681 10,546,474,527 10,839,440,027 10,723,170,809 10,402,515,684 9,083,290,211 8,727,702,573 8,402,403,364 7,255,640,292 $

TOTALS 15,221,954,470 15,125,408,200 14,984,937,627 15,222,189,222 14,969,536,405 14,638,856,501 12,897,825,080 12,421,799,720 12,001,190,379 10,350,628,778

1,372 1,320 1,234 1,196 1,064 994 1,088 1,092 1,061 1,036

338,918,061 223,215,672 241,509,266 199,331,086 274,267,477 293,968,408 263,006,153 204,677,969 258,670,339 269,298,229

City of Lincoln, Building and Safety Department. Lancaster County Assessor.

Police and Fire Protection Lincoln has fourteen fire stations manned by 282 firefighters and three police stations with 319 police officers. City Employee Information For the 2012-2013 fiscal year, contracts have been signed with all but two of our unions. Unions include: the Lincoln Police Union (LPU) representing police officers; the International Association of Firefighters (IAF) representing firefighters, the Amalgamated Transit Union (ATU) representing transit workers, the Public Association of Government Employees (PAGE) representing labor, trades, and clerical personnel, the City Employees Association (CEA) representing supervisory, highly technical, and professional personnel, and the Lincoln M Class Employees Association (LMCEA) representing upper management, administration and professional personnel. The ATU and IAF contracts are awaiting City offers and expected to be finalized soon. The ATU contract will likely expire at the end of August, 2013. All other contracts will expire at the end of August, 2014. Since the inception of labor contracts in 1970, the City of Lincoln has been able to handle its labor relations in such a manner as to avoid interruptions, although it has been necessary to use the facilities of the Nebraska Commission of Industrial Relations on issues involving the International Association of Firefighters, International Brotherhood of Police Officers, and the Public Association of Government Employees.

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SELECTED ECONOMIC INDICATORS

LINCOLN SMSA (LANCASTER COUNTY) NONAGRICULTURAL WAGE AND SALARY EMPLOYMENT

MAY 31, 2012 Number Percent Employed of Total Industry Manufacturing: Durable Goods Nondurable Goods Total Industry Manufacturing Nonmanufacturing: Natural Resource & Construction Transportation, Communications & Utilities Wholesale Trade Retail Trade Information Finance, Insurance & Real Estate Services (except domestic) Government Total Nonmanufacturing TOTAL

NOVEMBER 30, 2012 Number Percent Employed of Total

7,797 4,357 12,154 6,982 10,456 4,193 19,076 2,095 13,627 67,756 39,936 164,121 176,275

4.4 2.5 6.9 4.0 5.9 2.4 10.8 1.2 7.7 38.4 22.7 93.1 100.0

8,218 4,574 12,792 7,156 10,395 4,028 19,278 2,148 13,651 69,262 40,037 165,955 178,747

4.6 2.6 7.2 4.0 5.8 2.3 10.8 1.3 7.6 38.8 22.4 93.0 100.0

Lincoln is proud to have some of the nation's leading industrial companies as local employers, including Goodyear Tire and Rubber Company, Burlington Northern Railroad, Archer-Daniels-Midlands Company, Kawasaki Motors Corporation USA, and Square D.

LINCOLN SMSA (LANCASTER COUNTY LABOR FORCE DATA 2012-2003)

(For the Calendar Year Indicated)

2012 Civilian Labor Force Unemployment Percent of Labor Force Employment 166,376 5,919 3.6 160,457 2011 163,270 6,516 4.0 156,755 2010 159,872 6,792 4.2 153,080 2009 159,387 6,937 4.4 152,450 2008 160,357 4,839 3.0 155,518 2007 157,841 4,365 2.8 153,476 2006 156,204 4,308 2.8 151,896 2005 156,033 5,603 3.6 150,430 2004 156,100 5,470 3.5 150,630 2003 154,720 5,686 3.7 149,034

S TATE OF NEBRASKA
Percent of Labor Force Unemployment 3.9 4.7 4.7 3.3 3.0 3.0 3.9 3.9 4.0 3.7

Source: State of Nebraska, Depa partment of Labor

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LINCOLN PRINCIPAL EMPLOYERS CURRENT YEAR

Employer State of Nebraska Lincoln Public Schools University of Nebraska-Lincoln BryanLGH Medical Center US Government City of Lincoln Saint Elizabeth Regional Medical Center Burlington Northern Railroad B&R Stores, Inc. State Farm Insurance Total

Employees 8,894 7,515 6,006 3,865 3,035 2,587 2,259 1,800 1,506 1,382 38,849

Percentage of Total City Rank Employment 1 2 3 4 5 6 7 8 9 10 5.00 % 4.23 3.38 2.17 1.71 1.45 1.27 1.01 0.85 0.78 21.85 %

DEMOGRAPHIC STATISTICS LAST TEN YEARS

Year 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003

Population 1 262,341 258,379 254,001 251,624 248,744 241,167 239,213 238,625 236,146 235,565

Per Capita Personal Income 2 $ 39,018 37,231 36,653 38,204 36,624 35,251 33,644 32,907 32,009

School Enrollment 3 36,902 36,530 35,896 34,973 34,061 33,466 32,934 32,505 32,270 31,889

Sources: 1 Lincoln/Lancaster Planning Department. 2 U.S. Dept. of Commerce Bureau of Economic Analysis. Per Capital Income is based on Lincoln Metropolitan Statistical Area, which includes all of Lancaster and Seward Counties. Per Capita Income for 2012 is unavailable. 3 Lincoln Public Schools.
Median age from the 2010 census was 31.8. Education statistics per the 2010 Census indicate that 92.4% of the population 25 years and older has a high school degree or greater with 35.2% of the same population holding a Bachelor's degree or greater.

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LINCOLN UTILITY CUSTOMERS LAST TEN YEARS

Year 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003

Water Customers 79,698 79,184 78,740 77,973 77,532 76,816 75,919 74,649 73,059 72,260

Gas Customers 94,592 94,231 93,916 93,679 93,419 93,301 92,824 92,152 91,046 89,642

Electricity Customers 129,163 128,373 129,322 128,115 126,978 124,878 123,376 121,508 119,456 116,974

Source: Indicated Utility Companies

A-5

SELECTED FINANCIAL STATISTICS

GENERAL GOVERNMENTAL EXPENDITURES BY FUNCTION LAST TEN FISCAL YEARS

Streets And Highways 18,471,067 18,335,078 19,832,223 16,445,304 16,482,240 17,430,452 16,928,575 17,064,845 13,633,902 12,317,663 Culture And Recreation 22,518,532 21,794,585 21,483,873 22,449,569 21,686,564 21,719,544 20,938,212 21,669,847 22,308,940 19,935,823 Health And Welfare 22,070,619 21,993,415 21,652,729 20,349,757 21,053,132 20,378,863 25,566,267 19,126,931 18,544,667 17,614,751

Fiscal Year 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003
1

General Government $ 39,048,320 36,622,362 35,865,006 34,428,477 35,278,575 33,946,258 34,666,641 32,532,685 30,884,544 28,938,852

Public Safety 70,444,362 69,537,057 64,679,523 63,984,484 61,147,903 60,953,651 60,064,604 58,669,932 55,272,920 50,933,285

Economic Opportunity 14,673,671 15,811,914 15,359,628 11,321,242 14,685,668 11,670,315 12,623,307 14,870,592 14,728,510 16,469,645

Mass Transit 10,288,935 15,088,883 12,034,413 9,575,670 10,707,601 14,877,357 8,901,327 8,306,921 10,525,090 7,996,019

Debt Service 31,689,831 26,439,462 17,032,401 16,990,105 14,427,795 11,589,720 11,016,269 10,562,993 7,914,521 8,507,223

Totals 229,205,337 225,622,756 207,939,796 195,544,608 195,469,478 192,566,160 190,705,202 182,804,746 173,813,094 162,713,261

Includes General, Special Revenue, and Debt Service Funds.

GENERAL REVENUES BY SOURCE LAST TEN FISCAL YEARS

Fiscal Year 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003
1

Taxes And Special Assessment $ 161,333,989 144,632,640 131,562,303 130,360,416 130,094,818 125,328,388 121,857,986 119,318,079 114,756,962 107,114,577

InterGovernmental 68,267,660 71,532,824 61,640,301 75,099,973 73,830,720 63,928,043 60,757,501 63,180,171 58,619,699 52,773,424

Permits And Fees 20,239,031 18,524,372 16,432,219 17,119,002 18,013,104 19,126,239 18,423,079 16,535,049 15,593,326 12,679,623

Reimbursement For Services 7,850,732 7,521,366 7,004,334 6,600,299 6,511,457 6,491,112 7,063,192 6,936,334 6,322,870 6,097,336

Investment Earnings 4,744,887 5,454,877 5,197,259 5,791,391 6,806,258 10,371,565 4,082,196 4,327,311 5,207,711 4,353,336

Other 20,209,185 11,279,552 6,467,138 7,818,015 7,667,778 7,052,107 7,886,377 12,028,417 10,188,520 8,234,138

Totals 282,645,484 258,945,631 228,303,554 242,789,096 242,924,135 232,297,454 220,070,331 222,325,361 210,689,088 191,252,434

Includes General, Special Revenue, and Debt Service Funds.

A-6

SPECIAL ASSESSMENT COLLECTIONS 1 LAST TEN YEARS

Fiscal Year Ended August 31 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003
1

Special Assessment Collections Including Interest $ 1,151,931 1,103,720 1,136,150 1,071,238 1,418,936 1,448,146 1,667,037 1,413,582 2,104,925 1,814,191

Special assessment collections are not tracked by levy year, therefore the portion of collections during any year that apply to any particular levy cannot be determined.

Authority to Levy Taxes Article IX, Section 3 of the Home Rule Charter of the City provides that the City shall have power to levy a tax each year for general revenue purposes upon all property subject to taxation; provided that the maximum amount of taxes that can be levied by the City in any one year for general revenue purposes shall not exceed an amount known as the City tax limit. The City tax limit is a tax ceiling established by using the September 1, 1966 City dollar tax limit as an initial tax limit, and increasing that tax limit each year following 1966 by 7% so that in each fiscal year thereafter, the amount of the City tax limit shall be the amount of the city tax limit for the previous year, plus 7% thereof. In addition, the City also has the power to levy taxes each year sufficient to pay any judgment existing against the City and the interest on bonded debt and the principal on any bonded debt maturing during the fiscal year or within six months thereafter, as well as taxes authorized by state law. The City is also authorized to receive all taxes collected and distributed pursuant to state law and in lieu of tax payments imposed by law. The 2012 tax levy for the 2012-2013 fiscal year is $107,939,017 below the legal limit, a tax rate per $100 valuation of .31580. The assessed value upon which the 2012 levy is based is $16,676,196,896. By charter, only 90% of the property tax levy may be appropriated. For the 2012-2013 fiscal year the City is subject to a state imposed lid on the appropriation of restricted funds, that are revenues received from property tax, sales tax, state aid, in-lieu of tax and highway allocation fees. Bonded indebtedness, capital improvements, and costs associated with inter local agreements are exempt from the lid. For 2012-2013 the City can also use authority equal to the greater of 2.5% or the amount of real growth in the tax base that was 4.88%. An additional 1% can be authorized by a 75% vote of the City Council and was utilized for the 2012-2013 budget. The 2012-2013 budget is $9,362,458 below the state imposed lid limit.

A-7

PROPERTY TAX LEVIED AND COLLECTED LAST TEN YEARS The fiscal year of the City begins September 1 and ends August 31. Taxes are levied in October. First installments of real estate taxes are delinquent the following April 1, second installments delinquent August 1; personal property taxes are delinquent April1 and August 1. Delinquent taxes bear 14 percent interest. The figures below include interest and penalties. The figures below do not include motor vehicle in lieu of ad valorem taxes.

Tax Year 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 $

Taxes Levied 50,214,817 $ 45,718,972 45,197,040 45,884,670 45,052,028 43,291,440 40,930,818 38,755,995 36,994,112 35,007,926

CollectedAs Of August 31 After Levy Amount Percent 48,788,943 44,206,917 43,791,366 44,385,970 43,526,689 41,815,295 39,549,553 37,488,504 35,696,288 33,648,496 97.16 % 96.69 96.89 96.73 96.61 96.59 96.63 96.73 96.49 96.12 $

Accumulated Collections As Of August 31, 2012 Amount Percent 48,788,943 45,555,557 45,185,352 45,869,388 45,040,680 43,285,065 40,927,608 38,749,283 36,902,819 34,916,463 97.16 % 99.64 99.97 99.97 99.97 99.99 99.99 99.98 99.75 99.74

TEN LARGEST TAXPAYERS Listed below are the ten largest taxpayers in the City of Lincoln as reported by the County Assessor. These taxpayers each pay less than five percent of the total taxes levied.

Taxpayers Burlington Northern B & J Partnership Ltd. Kawasaki Ameritas Life Insurance Corp WEA Gateway LLC BryanLGH Chateau Van Dorn LLC Pfizer Nebco Windstream

Type of Business Railroad Building Management Manufacturing Insurance Retail Management Hospital Real Estate Development Animal Health Construction/Development Telecommunications $

2012 Assessed Valuations 82,347,921 79,342,600 72,189,027 59,515,629 57,102,771 51,802,894 49,141,073 45,496,415 44,869,204 40,146,292 581,953,826

Percentage Of Total Assessed Valuation 0.52% 0.50% 0.45% 0.37% 0.36% 0.33% 0.31% 0.29% 0.28% 0.25% 3.66%

A-8

CITY SALES TAX INFORMATION The City had a one percent (1%) sales and use tax through June 30, 1985. Effective July 1, 1985 the sales and use tax was raised to one and one half percent (1.5%). These taxes are administered and collected for the City by the State of Nebraska. The State receives three percent (3%) for their service. The City has had a sales tax since 1969.

SALES AND USE TAX COLLECTIONS LAST TEN YEARS

Year Ended August 31 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 $

Amount 61,472,342 57,959,545 54,925,013 54,255,376 55,733,297 53,960,485 54,270,346 53,781,209 51,869,477 48,657,268

GENERAL FUND TAX COLLECTIONS LAST TEN YEARS Property and Motor Vehicle Taxes $ 33,574,992 $ 31,449,267 31,486,553 33,783,984 32,181,660 31,454,763 28,366,526 26,727,618 24,546,532 22,780,085

Fiscal Year 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003

Sales and Use Taxes 61,472,342 57,959,545 54,925,013 54,255,376 55,733,297 53,960,485 54,270,346 53,781,209 51,869,477 48,657,268

Sundry Taxes 31,610 30,957 11,895 8,143 18,600 10,492 9,526 12,445 9,263 10,876

Taxes In Lieu 1,936,396 1,755,098 1,620,431 1,540,752 1,511,404 1,399,939 1,315,038 1,159,742 1,144,747 1,199,507

Occupation Taxes 12,583,795 $ 11,699,691 10,467,534 10,071,230 9,670,060 9,596,588 8,936,502 9,169,791 9,037,781 8,831,712

Total 109,599,135 102,894,558 98,511,426 99,659,485 99,115,021 96,422,267 92,897,938 90,850,805 86,607,800 81,479,448

A-9

TAXABLE ASSESSED VALUATION 1 LAST TEN YEARS

Tax Year 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004
1

Real Estate $ 15,969,385,392 $ 15,221,954,470 15,125,408,200 14,984,937,627 15,222,189,222 14,969,536,405 14,638,856,501 12,897,825,080 12,421,799,720 12,001,190,379

All Other 706,811,504 $ 678,874,343 755,852,220 761,515,955 713,383,515 684,390,085 703,307,287 685,425,215 716,716,506 742,915,013

Total 16,676,196,896 15,900,828,813 15,881,260,420 15,746,453,582 15,935,572,737 15,653,926,490 15,342,163,788 13,583,250,295 13,138,516,226 12,744,105,392

Property is assessed at actual value; therefore, the assessed values are equal to actual value.

TOTAL PROPERTY TAX LEVIES ALL OVERLAPPING GOVERNMENTS 1 LAST TEN YEARS
Tax Year 2008 2007 0.2879 0.2833 1.2719 1.2764 0.2755 0.2655 0.0141 0.0141 0.0689 0.0689 0.0418 0.0416 0.0260 0.0246 0.0016 0.0016 0.0043 0.0037 0.0170 0.0170 2.0090 1.9967

City of Lincoln School District No. 1 Lancaster County Educational Service Unit #18 Community Technical College Lower Platte South Natural Res. Dist. Railroad Transportation Safety Dist. Lancaster County Correctional JPA City Lancaster County Correctional JPA County Agricultural Society of Lancaster County Lancaster County Fairgrounds Public Building Commission

2012 0.3158 1.2461 0.2683 0.0150 0.0627 0.0398 0.0260 0.0185 0.0105 0.0016 0.0037 0.0170 2.0250

2011 0.2879 1.2462 0.2683 0.0145 0.0600 0.0406 0.0260 0.0189 0.0106 0.0017 0.0038 0.0170 1.9955

2010 0.2879 1.2537 0.2683 0.0150 0.0676 0.0410 0.0260 0.0194 0.0107 0.0016 0.0038 0.0170 2.0120

2009 0.2879 1.2668 0.2683 0.0150 0.0722 0.0410 0.0260 0.0195 0.0106 0.0015 0.0038 0.0170 2.0296

2006 0.3009 1.3142 0.2841 0.0150 0.0696 0.0422 0.0260 0.0018 0.0042 0.0170 2.0750

2005 0.2950 1.3141 0.2797 0.0150 0.0655 0.0323 0.0260 0.0020 0.0042 0.0170 2.0508

2004 0.2903 1.3011 0.2683 0.0150 0.0655 0.0323 0.0248 0.0030 0.0043 0.0170 2.0216

2003 0.3145 1.2830 0.2683 0.0150 0.0655 0.0359 0.0220 0.0012 0.0050 0.0170 2.0274

The assessment rate is 100% of market and the levy is expressed as the tax per $100 of estimated market value.

A-10

DEBT MANAGEMENT
OUTSTANDING INDEBTEDNESS AS OF AUGUST 31, 2012 Long-term debt is comprised of the following individual issues (in thousands of dollars)
Original Amount Issued Issue Interest Rate When Due Date Callable Interest Date Outstanding

The

General Obligation Bonds: General Bonds: 9,950 06/15/05 Storm Sewer Construction 8,295 06/27/07 Stormwater Drainage and Flood Mgmt 8,200 02/10/11 Stormwater Bonds 19,290 06/21/11 Refunding 8,090 06/26/12 Refunding Total General Bonds Tax Allocation Bonds: 5,500 04/21/04 Tax Allocation Bonds 365 08/15/05 Tax Allocation Bonds 288 10/01/06 Tax Allocation Bonds 2,205 04/05/07 Tax Allocation Bonds 601 06/01/07 Tax Allocation Bonds 388 06/01/07 Tax Allocation Bonds 369 06/15/07 Tax Allocation Bonds 42 07/15/08 Tax Allocation Bonds 71 07/15/08 Tax Allocation Bonds 474 07/15/08 Tax Allocation Bonds 547 08/01/08 Tax Allocation Bonds 200 08/01/08 Tax Allocation Bonds 611 06/30/09 Tax Allocation Bonds 3,375 07/28/09 Tax Allocation Bonds 263 04/01/11 Tax Allocation Bonds Total Tax Allocation Bonds Tax Supported Bonds: 27,000 12/05/06 Highway Allocation Fund 28,095 06/06/12 Highway Allocation Fund Total Tax Supported Bonds Special Assessment Bonds: 825 08/18/11 Special Assessment 375 08/18/11 Special Assessment 3,000 11/23/11 Special Assessment Total Special Assessment Bonds West Haymarket Joint Public Agency 31,515 09/08/10 Facility Bonds Taxable Build America Bonds 68,485 09/08/10 Facility Bonds Taxable Build America Bonds 15,785 12/01/10 Facility Bonds Taxable Build America Bonds 52,180 12/01/10 Facility Bonds Taxable Build America Bonds 32,035 12/01/10 Recovery Zone Economic Development 44,290 08/24/11 Facility Bonds 55,710 08/24/11 Facility Bonds Total West Haymarket Joint Public Agency TOTAL GENERAL OBLIGATION BONDS Tax Supported Bonds: 11,080 3/13/02 Antelope Valley Project Revenue Bonds: 18,000 08/03/05 Wastewater Revenue 16,710 04/18/07 Wastewater Revenue 3,750 04/18/07 Wastewater Revenue 38,290 05/24/12 Wastewater Revenue Total Wastewater Bonds 40,000 10,515 4,905 10,895 4,360 1,640 2,065 7,745 10,775 4,000 148,190 93,045 33,265 61,290 53,710 183,230 81,850 11/16/04 Water Revenue 08/04/09 Water Revenue 08/04/09 Water Revenue 06/21/12 Water Revenue Total Water Bonds 12/18/01 Parking Revenue 12/18/01 Parking Revenue 12/29/10 Parking Revenue 01/27/11 Parking Revenue and Refunding 01/27/11 Parking Revenue and Refunding Total Parking Bonds 08/17/06 Solid Waste Management Revenue

3.250 - 4.250 4.625 - 5.000 2.000 - 4.500 0.2000 - 5.000 1.000 - 3.000

Serial 2006 to 2025 Serial 2008 to 2027 Serial 2013 to 2030 Serial 2011 to 2022 Serial 2013 to 2023

2015 2017 2020 2019 na

Semiannually " " " " $

7,235 6,935 8,200 18,880 8,090 49,340 2,415 187 157 1,655 550 275 140 33 58 280 435 157 597 3,175 244 10,358 22,155 28,095 50,250 775 375 2,860 4,010 31,515 68,485 15,785 52,180 32,035 44,290 55,710 300,000 413,958

3.000 - 4.800 4.750 5.100 5.000 - 5.550 5.240 5.240 5.400 4.660 4.660 4.660 4.610 4.610 7.00 2.500 - 6.400 3.990

Serial 2004 to 2015 Serial 2006 to 2018 Serial 2008 to 2016 Serial 2009 to 2018 Serial 2008 to 2018 Serial 2007 to 2020 Serial 2007 to 2014 Serial 2009 to 2021 Serial 2009 to 2017 Serial 2009 to 2022 Serial 2009 to 2022 Serial 2009 to 2022 Serial 2011 to 2023 Serial 2011 to 2023 Serial 2011 to 2022

2010 Anytime Anytime 2012 Anytime Anytime Anytime Anytime Anytime Anytime Anytime Anytime Anytime Anytime Anytime

" " " " " " " " " " " " " " " $

4.000 - 5.000 1.000 - 5.000

Serial 2008 to 2027 Serial 2012 to 2023

2016 na

Semiannually " $

0.400 - 3.700 4.200 2.000 - 3.500

Serial 2012 to 2026 Term 2031 Serial 2012 to 2031

Semiannually " " $

3.500 - 4.45 4.750 / 5.000 4.000 - 5.000 5.400 / 5.800 / 6.000 6.750 3.500 - 5.000 4.250 / 5.000

Serial 2020 to 2030 Term 2035 & 2045 Serial 2020 - 2025 Term 2030 2035 2039 Term 2045 Serial 2021 to 2032 Term 2036 & 2042

Anytime Anytime Anytime Anytime Anytime 2021 2021

Semiannually " " " " " " $ $

1.500 - 5.000 4.000 - 5.000 4.000 - 4.500 4.375 1.000 - 5.000 3.000 - 5.000 2.000 - 4.125 4.5000 1.000 - 4.000 3.750 - 5.000 5.125 1.250 - 2.850 2.000 - 5.000 5.000 / 5.125 / 5.500 4.000 - 4.250 4.000 - 5.000 3.000 - 5.000 4.750 5.000 4.750 4.000 - 5.000 4.500 / 4.750

Serial 2002 to 2016 Serial 2006 to 2030 Serial 2008 to 2029 Term 2032 Serial 2013 to 2028 Serial 2005 to 2025 Serial 2013 to 2029 Term 2034 Serial 2013 to 2022 Serial 2002 to 2017 Term 2021 Serial 2011 to 2014 Serial 2015 to 2024 Term 2026 & 2031 Serial 2007 to 2021 Serial 2004 to 2025 Serial 2004 to 2026 Term 2028 Serial 2029 to 2032 Term 2035 Serial 2009 to 2035 Term 2034 & 2037

2012 2015 2017 2017 2023 2014 2019 2019 na 2011 2011 N/A 2021 2021 2013 2012 2014 2014 2015 2015 2016 2016

Semiannually Semiannually " " " Semiannually " " "

$ $

5,210 14,460 14,190 3,750 38,290 70,690 31,210 10,515 4,905 10,895 57,525 1,650 1,640 1,185 7,745 10,775 22,995 2,800 70,040 74,905 33,265 61,290 53,710 172,490 81,850 547,550 701,560

$ " " " " " $ Semiannually " " " " " " " $ $ $

10/01/02 Electric Revenue and Refunding Bonds 10/01/03 Electric Revenue and Refunding Bonds 10/01/03 Electric Revenue and Refunding Bonds 10/01/05 Electric Revenue Bonds 10/01/05 Electric Revenue Bonds 05/15/07 Electric Revenue and Refunding Bonds 05/15/07 Electric Revenue and Refunding Bonds Total Electric Bonds TOTAL REVENUE BONDS

annual requirements to pay principal and interest on all outstanding debt are as follows (in thousands of dollars):

A-11

The annual requirements to pay principal and interest on all outstanding debt are as follows (in thousands of dollars):
Fiscal Year Ended August 31 2013 2014 2015 2016 2017 2018 - 2022 2023 - 2027 2028 - 2032 2033 - 2037 2038 - 2042 2043 - 2046 General Obligation Bonds Principal Interest 7,683 19,140 8,876 19,022 9,236 18,766 9,606 18,433 8,724 18,114 54,714 85,303 69,719 71,004 55,270 57,191 62,955 43,267 76,235 25,396 50,940 5,492 413,958 381,128 Governmental Activities Tax Supported Bonds Principal Interest 740 238 780 200 815 162 855 122 2,020 51 5,210 773 Capital Leases Principal Interest 3,842 962 3,983 878 4,076 787 4,165 680 2,955 573 8,894 1,822 5,123 613 333 32 33,371 6,347

Fiscal Year Ended August 31 2013 2014 2015 2016 2017 2018 - 2022 2023 - 2027 2028 - 2032 2033 - 2037 2038

$ Fiscal Year Ended August 31 2013 2014 2015 2016 2017 2018 - 2022 2023 - 2027 2028 - 2032 2033 - 2037 2038 - 2042

Business-Type Activities Revenue Bonds Loans Payable Principal Interest Principal Interest 27,200 32,687 368 139 28,440 31,411 527 259 29,605 30,123 693 371 30,920 28,746 709 355 32,355 27,288 725 338 167,615 112,587 3,887 1,431 117,085 79,931 4,365 954 117,995 52,148 4,448 415 122,705 23,693 810 25 27,640 1,244 701,560 419,858 16,532 4,287 Major Enterprise Funds Water System Principal Interest 3,360 2,397 3,498 2,323 3,649 2,239 3,752 2,107 3,875 1,971 21,435 7,169 12,993 2,897 5,225 1,190 2,366 151 60,153 22,444

Capital Leases Principal Interest 343 49 350 41 297 32 243 27 248 22 790 48 2,271 219

Wastewater System Principal Interest 3,488 2,925 3,724 2,858 3,909 2,838 4,047 2,665 4,200 2,493 22,513 10,690 26,752 6,262 15,407 1,520 554 17 84,594 32,268

Electric System Principal Interest 19,610 26,333 20,595 25,353 21,620 24,323 22,675 23,271 23,800 22,146 120,725 91,862 75,095 68,966 95,195 48,970 120,595 23,550 27,640 1,244 547,550 356,018

The City issues general obligation, special assessment, and revenue bonds to finance the acquisition and construction of major capital assets. Bonded indebtedness has also been entered into to advance refund several general obligation and revenue bonds. General obligation bonds are direct obligations and pledge the full faith and credit of the government. Special assessment bonds are repaid from amounts levied against affected property owners, but in the unlikely event collections are not sufficient to make debt payments, the responsibility rests with the City to meet that obligation. For revenue bonds the government pledges income derived from the acquired or constructed assets to pay the debt service. Net assets of $4,447,455, $2,847,674, $10,305,977, and $363,083 are currently available in the debt service funds to service the General Obligation Bonds, Tax Supported Bonds, Tax Allocation Bonds, and Special Assessment Bonds, respectively. Revenue Bonds are funded partially from reserve accounts set up for debt repayment and partially from proceeds of daily operations. The City has entered into lease agreements for financing the acquisition of land, buildings, street lights, emergency ambulances and defibrillators, fire engines, golf equipment and computer equipment and software. These lease agreements qualify as capital

A-12

leases for accounting purposes and, therefore, have been recorded at the present value of their future minimum lease payments as of the inception date. Assets acquired through capital leases are as follows:
Governmental Activities Land Buildings Improvements Infrastructure Machinery and Equipment Construction In Progress Less Accumulated Depreciation, (where applicable) Total $ 1,774,450 19,307,004 219,925 15,475,023 4,699,356 672,247 (6,939,014) 35,208,991 $ Business-Type Activities 210,000 3,122,785 160,297 (2,219,160) 1,273,922

Under the Citys Home Rule Charter, there is no legal debt limit. The various bond indentures contain significant limitations and restrictions on annual debt service requirements, minimum amounts to be maintained in various bond reserve funds, and minimum revenue bond coverage. The general obligation debt of all local governmental units which provide services within the Citys boundaries and which debt must be borne by properties in the City (commonly called overlapping debt) as of August 31, 2012, is summarized below (unaudited):
Estimated Percentage Applicable 100.0 % 99.5 75.4 85.4 85.4 85.4 85.4 $ $ Direct And Overlapping Debt To The City 413,958,000 349,686,000 914,000 33,537,000 48,789,000 6,930,000 439,856,000 853,814,000

Governmental Units Direct: City $ Overlapping: School District #1 Lower Platte South N.R.D. Lancaster County Public Building Commission Lancaster County Correctional Facility Lancaster County Fairgrounds Total $

Debt Outstanding 413,958,000 351,443,000 1,070,000 39,270,000 57,130,000 8,115,000 457,028,000 870,986,000

The City has no direct liability for the School District, Lower Platte South N.R.D., Lancaster County, Public Building Commission, Lancaster County Fairgrounds or Lancaster County Correctional Facility debt summarized above. This results in a per capita direct City debt of $1,577.94; a per capita direct and overlapping debt of $3,254.60; a ratio of direct City debt to 2012 actual valuation of 2.60 percent; and a ratio of direct and overlapping debt to 2012 actual valuation of 5.37 percent. In addition to the governmental units listed above, the Airport Authority of the City of Lincoln, Nebraska (the Airport Authority), a body politic and corporate separate and distinct from the City of Lincoln, provides services within the Citys boundaries and has overlapping general obligation indebtedness. As of June 30, 2012, the Airport Authority had outstanding $9,540,000 in aggregate principal amount of its general obligation airport bonds. The Airport Authority anticipates that such bonds will be paid from revenues derived from its operations of the Lincoln Municipal Airport, but the Airport Authority is authorized to levy a property tax, at a rate not to exceed three and five-tenths cents ($.035) on each $100 of taxable valuation, on all the taxable property in the City. The Airport Authority has not levied a property tax since 1985 for any purpose, including airport operating expenses or debt service on its bonds. Debt Payment Record The City of Lincoln has never defaulted on its obligation to pay principal or interest on its indebtedness.

A-13

Contingencies The City is a defendant in a number of lawsuits in its normal course of operations and management is of the opinion that ultimate settlement of such lawsuits will not have a materially adverse effect on the financial statements.

RATIO OF ANNUAL DEBT SERVICE EXPENDITURES FOR GENERAL BONDED DEBT TO TOTAL GENERAL EXPENDITURES LAST TEN FISCAL YEARS

1 2

Includes: General, Special Revenue, and Debt Service Funds. Does not include fiscal and miscellaneous charges.

SCHEDULE OF GENERAL OBLIGATION DEBT IN RELATION TO POPULATION, ASSESSED VALUATION, AND REAL PROPERTY VALUATION LAST TEN FISCAL YEARS
Ratio of Net Debt To Estimated Valuation Of Taxable Real Property 0.65% 0.70% 0.70% 0.73% 0.77% 0.83% 0.69% 0.73% 0.65% 0.43%

Fiscal Year 2012 $ 2011 2010 2009 2008 2007 2006 2005 2004 2003

General Obligation Bonded Debt 113,958,000 $ 119,663,000 118,383,000 125,181,000 128,581,000 133,413,000 99,347,000 104,538,000 98,915,000 61,759,000
1

Sinking Funds 15,142,000 $ 13,305,000 13,480,000 13,604,000 12,962,000 11,574,000 9,733,000 13,364,000 20,509,000 17,083,000

Net General Obligation Bonded Debt 98,816,000 106,358,000 104,903,000 111,577,000 115,619,000 121,839,000 89,614,000 91,174,000 78,406,000 44,676,000

Population 1 262,341 $ 258,379 254,001 251,624 248,744 241,167 239,213 238,625 236,146 235,565

Net G.O. Bonded Debt Per Capita 376.67 $ 411.64 413.00 443.43 464.81 505.21 374.62 382.08 332.02 189.65

Assessed Valuation Real And Personal 15,900,828,813 15,881,260,420 15,746,453,582 15,935,572,737 15,653,926,490 15,342,163,788 13,583,250,295 13,138,516,226 12,744,105,392 11,130,588,167
2

Ratio of Net Debt To Assessed Valuation Real & Personal 2 0.62% 0.67% 0.67% 0.70% 0.74% 0.79% 0.66% 0.69% 0.62% 0.40% $

Assessed Valuation Of Taxable Real Property 2 15,221,954,470 15,125,408,200 14,984,937,627 15,222,189,222 14,969,536,405 14,638,856,501 12,897,825,080 12,421,799,720 12,001,190,379 10,350,628,778

Source: Lincoln/Lancaster Planning Department.

Assessed valuation is 100% of actual

A-14

REVENUE BOND COVERAGE LAST TEN FISCAL YEARS

Gross Revenue Wastewater System 2012 $ 2011 2010 2009 2008 2007 2006 2005 2004 2003 Water System 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 24,763,975 23,546,370 22,472,095 22,643,270 22,347,867 21,158,743 19,827,194 18,248,683 18,092,619 15,607,743

Direct Operating Expenses 12,378,673 12,543,964 11,664,593 11,771,291 11,393,624 11,462,964 11,125,819 10,482,955 10,042,919 9,086,469

Net Available Revenue 12,385,302 11,002,406 10,807,502 10,871,979 10,954,243 9,695,779 8,701,375 7,765,728 8,049,700 6,521,274

Principal 3,137,858 2,865,000 2,695,000 2,620,000 2,415,000 2,005,000 2,065,000 1,500,000 1,750,000 1,032,500

Debt Service Requirements Interest Total 3,655,156 3,647,609 3,731,444 3,820,044 4,030,454 3,081,481 3,043,500 2,403,519 2,133,704 266,722 6,793,014 6,512,609 6,426,444 6,440,044 6,445,454 5,086,481 5,108,500 3,903,519 3,883,704 1,299,222

Coverage 1.82 1.69 1.68 1.69 1.70 1.91 1.70 1.99 2.07 5.02

35,984,891 30,629,506 26,515,467 27,838,187 27,257,184 29,386,495 29,014,999 27,153,937 24,557,918 22,094,721

15,636,494 15,455,027 14,091,292 14,995,077 14,425,521 14,351,136 13,808,214 13,145,665 12,477,486 11,631,496

20,348,397 15,174,479 12,424,175 12,843,110 12,831,663 15,035,359 15,206,785 14,008,272 12,080,432 10,463,225

5,380,000 6,310,000 6,050,000 5,795,000 5,555,000 5,340,000 5,130,000 4,895,000 3,115,000 3,010,000

2,955,202 3,191,857 3,458,097 3,128,414 3,376,201 3,612,001 3,834,301 3,517,932 2,411,632 2,898,489

8,335,202 9,501,857 9,508,097 8,923,414 8,931,201 8,952,001 8,964,301 8,412,932 5,526,632 5,908,489

2.44 1.60 1.31 1.44 1.44 1.68 1.70 1.67 2.19 1.77

Parking Facilities 1 2012 $ 2011 2010 2009 2008 2007 2006 2005 2004 2003 Solid Waste Management 2012 $ 2011 2010 2009 2008 2007

7,382,101 7,698,018 6,869,392 7,014,250 7,134,709 6,645,013 6,785,593 6,219,935 6,299,598 5,988,240

3,823,131 3,606,008 3,340,601 2,874,768 2,912,511 2,781,952 2,775,122 2,972,709 2,733,492 2,304,632

3,558,970 4,092,010 3,528,791 4,139,482 4,222,198 3,863,061 4,010,471 3,247,226 3,566,106 3,683,608

860,000 580,000 1,435,000 1,360,000 1,305,000 1,240,000 1,185,000 1,140,000 1,145,000 1,085,000

1,078,688 689,717 558,519 624,394 687,194 746,374 799,931 850,501 908,456 962,829

1,938,688 1,269,717 1,993,519 1,984,394 1,992,194 1,986,374 1,984,931 1,990,501 2,053,456 2,047,829

1.84 3.22 1.77 2.09 2.12 1.94 2.02 1.63 1.74 1.80

7,745,565 7,615,130 7,377,385 7,664,336 8,537,520 8,020,390

6,376,120 6,253,133 5,768,077 5,491,789 5,540,292 5,290,802

1,369,445 1,361,997 1,609,308 2,172,547 2,997,228 2,729,588

220,000 210,000 200,000 195,000 190,000 185,000

124,025 132,425 140,425 148,225 155,825 160,825

344,025 342,425 340,425 343,225 345,825 345,825

3.98 3.98 4.73 6.33 8.67 7.89

Information in this table does not agree with information in the transmittal letter of the Citys Comprehensive Annual Financial Report because that information is calculated in accordance with specific requirements of the bond covenants.

A-15

CITY OF LINCOLN, NEBRASKA GENERAL FUND SUMMARY CASH FLOW STATEMENT - CASH BASIS FOR LAST TEN FISCAL YEARS

F.Y. 2012 Cash & Investment Balance September 1 of Year Indicated Receipts: Property Tax City Sales & Use Tax Other Income Total Receipts Less Disbursements Cash & Investment Balance August 31 of Year Indicated 33,574,992 61,472,342 36,542,477 131,589,811 125,742,998

F.Y. 2011

F.Y. 2010

F.Y. 2009

F.Y. 2008

F.Y. 2007

F.Y. 2006

F.Y. 2005

F.Y. 2004

F.Y. 2003

16,942,409

14,597,487

16,286,626

15,738,481

14,632,274

13,475,643

18,948,253

23,521,130

26,784,845

26,589,993

31,449,267 57,959,545 33,232,580 122,641,392 120,296,470

31,486,553 54,925,013 27,906,103 114,317,669 116,006,808

33,783,984 54,255,376 27,389,492 115,428,852 114,880,707

32,181,660 55,733,297 26,270,119 114,185,076 113,078,869

31,454,763 53,960,485 27,663,641 113,078,889 111,922,258

28,366,526 54,270,346 25,390,112 108,026,984 113,499,594

26,727,618 53,781,209 25,620,145 106,128,972 110,701,849

24,546,532 51,869,477 23,615,320 100,031,329 103,295,044

22,780,085 48,657,268 24,933,838 96,371,191 96,176,339

22,789,222

16,942,409

14,597,487

16,286,626

15,738,481

14,632,274

13,475,643

18,948,253

23,521,130

26,784,845

A-16

CITY OF LINCOLN, NEBRASKA GENERAL BONDED INDEBTEDNESS AND DEBT SERVICE FUND SUMMARY CASH FLOW STATEMENT - CASH BASIS FOR LAST TEN FISCAL YEARS

F.Y. 2012 Cash Balance - September 1 of Year Indicated Receipts: Property Tax Interest Income Bond Proceeds Other Income Total Receipts Disbursements: Bonds Paid Bonds Defeased Interest Paid Transfer to Trustee Other Disbursements Total Disbursements Equity Transfer Cash Balance - August 31 of Year Indicated 1,822,197 8,242,367 118,023 12,572,587 2,390,000 5,773,392 13,723 8,369,497 110,962 14,267,574

F.Y. 2011

F.Y. 2010

F.Y. 2009

F.Y. 2008

F.Y. 2007

F.Y. 2006

F.Y. 2005

F.Y. 2004

F.Y. 2003

2,234,981

2,941,245

3,533,968

4,201,889

4,057,088

2,761,491

3,364,608

3,570,557

2,935,997

3,440,537

5,337,610 28,331 20,236,484 116,758 25,719,183

5,517,878 60,063

5,689,007 131,475

5,709,454 153,977

5,460,690 84,935

2,973,410 86,812

5,607,615 83,286 6,597,635

5,387,468 48,595

5,883,592 32,298 9,436,083

124,279 5,702,220

173,446 5,993,928

1,003,173 6,866,604

1,927,112 7,472,737

2,935,603 5,995,825

149,038 12,437,574

691,340 6,127,403

240,110 15,592,083

2,720,000

4,110,000

4,320,000

4,260,000

3,950,000

4,250,000

3,850,000

3,215,000

4,177,765 9,609,774

1,753,957 21,746,822 204,668 26,425,447

2,178,545

2,335,411

2,456,373

2,217,610

2,342,582

2,197,207 6,504,876

2,271,548

2,309,084

6,398 6,294,943

6,438 6,661,849

5,430 6,721,803

9,530 6,177,140

6,360 6,598,942

91,440 12,643,523

6,295 5,492,843 16,096,623

3,929,968

2,234,981

2,941,245

3,533,968

4,201,889

4,057,088

2,761,491 F.Y. 2003

3,364,608

3,570,557

2,935,997

A-17

CITY OF LINCOLN, NEBRASKA SPECIAL ASSESSMENT REVOLVING FUND SUMMARY CASH FLOW STATEMENT - CASH BASIS FOR LAST TEN FISCAL YEARS

F.Y. 2012 Cash & Investment Balance September 1 of Year Indicated Receipts: Special Assessment Collections Interest on Special Assessments City's Share of Costs Developers' Share of Costs Bond Proceeds Interest on Investments Miscellaneous Total Receipts Disbursements: Construction Costs Bonds Paid Equity Transfer Interest Paid on Bonds & Notes Other Refunds & Expenses Total Disbursements Cash & Investment Balance August 31 of Year Indicated 94,911 620,064 3,264,071 2,359,096 190,000 4,853,664 3,036,003 47,349 1,049,570 98,844 621,898

F.Y. 2011

F.Y. 2010

F.Y. 2009

F.Y. 2008

F.Y. 2007

F.Y. 2006

F.Y. 2005

F.Y. 2004

F.Y. 2003

759,180

4,302,257

4,161,711

11,148,146

9,991,053

8,846,000

7,583,251

7,830,502

6,910,967

6,586,633

996,209 106,379 233,615

984,301 148,383 292,420

954,672 112,749 34,802

1,235,621 179,258

1,257,112 188,349 187,957

1,476,284 189,927 723,038

1,208,686 204,108 578,992

1,654,695 267,298 116,009

1,271,575 346,725 97,107

1,200,000 60,248 38,456 2,634,907 1,560,253 1,437,496 135,149 335,273 453,282 33,964 1,902,125 340,274 49,403 2,023,095 254,809 74,657 2,718,715 217,996 30,687 2,240,469 140,289 288,482 2,466,773 130,555 195,535 2,041,497

2,081,765

1,113,691

861,203

742,698

766,768 55,000

1,066,513

1,796,239 100,000

1,399,323 105,000

1,560,456 105,000

7,554,009 3,758,342 337,877 6,177,984 306,016 1,419,707 8,719 8,423,931 2,334 745,032 37,581 18,693 878,042 389,453 1,455,966 3,425 588,056 2,487,720 10,420 32,495 1,547,238 17,534 34,173 1,717,163

2,348,773

759,180

4,302,257

4,161,711

11,148,146

9,991,053

8,846,000

7,583,251

7,830,502

6,910,967

A-18

APPENDIX B

FINANCIAL STATEMENTS OF THE CITY OF LINCOLN

[This page intentionally left blank.]

Comprehensive ANNUAL

R E P O R T
Fiscal Year Ended August 31, 2012

FINANCIAL

On the cover:
Top photo: Inside the new Pinnacle Bank Arena, set to open in fall 2013. Middle photo: Children enjoy the Dean and Pat Muhleisen Memorial Fountain in Union Plaza. Bottom photo: The Colossus, a sculpture by James Tyler in Union Plaza.

Designed by Citizen Information Center 02/2013

COMPREHENSIVE ANNUAL FINANCIAL REPORT

OF THE CITY OF LINCOLN, NEBRASKA

FOR THE FISCAL YEAR ENDED AUGUST 31, 2012

Prepared by: The Accounting Division of the Finance Department

INTRODUCTORY SECTION

OFFICIALS OF THE CITY OF LINCOLN

Chris Beutler ........................................................................................................... Mayor Carl Eskridge ....................................................................................... Chair, City Council Jon Camp .................................................................................... Vice Chair, City Council Eugene Carroll......................................................................................... Council Member Jonathan Cook ......................................................................................... Council Member Doug Emery ............................................................................................ Council Member Lloyd Hinkley ......................................................................................... Council Member DiAnna Schimek ..................................................................................... Council Member * * * * * *

Steve Hubka ............................................................................... Interim Finance Director Marvin Krout ..........................................................................................Planning Director Lynn Johnson ..................................................................... Parks and Recreation Director Kevin Wailes ........................................................ Lincoln Electric System Administrator David Landis ....................................................................... Urban Development Director Pat Leach .................................................................................................. Library Director Miki Esposito ................................................................... Public Works/Utilities Director Fred Hoke ............................................................................. Building and Safety Director Judith Halstead .......................................................................................... Health Director Douglas McDaniel................................................................................ Personnel Director Rodney Confer ............................................................................................. City Attorney Tom Casady.................................................................................... Public Safety Director Jim Peschong .................................................................................................. Police Chief John Huff ............................................................................................................ Fire Chief * * * * * *

CITY OF LINCOLN ORGANIZATION CHART

CITY OF LINCOLN, NEBRASKA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED AUGUST 31, 2012 TABLE OF CONTENTS INTRODUCTORY SECTION Page

Title Page Officials of The City of Lincoln............................................................................................................................... i City of Lincoln Organization Chart ......................................................................................................................... i Table of Contents .................................................................................................................................................... ii Letter of Transmittal from the Mayor .................................................................................................................... vi Letter of Transmittal from the Finance Director ...................................................................................................vii Certificate of Achievement for Excellence in Financial Reporting ..................................................................... xvi FINANCIAL SECTION Independent Accountants Report on Financial Statements and Supplementary Information .............................. 2 Managements Discussion and Analysis................................................................................................................. 5 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Assets ................................................................................................................................. 16 Statement of Activities................................................................................................................................... 17 Fund Financial Statements: Balance Sheet Governmental Funds ........................................................................................................... 18 Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds ............................................................................................................................... 19 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities...................................................... 20 Statement of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual (Budget Basis) General Fund ................................................................................ 21 Statement of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual (Budget Basis) Street Construction Fund .............................................................. 23 Statement of Net Assets Proprietary Funds ................................................................................................ 24 Statement of Revenues, Expenses, and Changes in Fund Net Assets Proprietary Funds .................................................................................................................................... 25 Statement of Cash Flows Proprietary Funds............................................................................................... 26 Statement of Fiduciary Net Assets Fiduciary Funds................................................................................... 27 Statement of Changes in Fiduciary Net Assets Fiduciary Fund ................................................................. 28 Notes to the Financial Statements: Note Summary of Significant Accounting Policies ..................................................................... 1 ........................ 30 Reconciliation of Government-wide and Fund Financial Statements ................................ 2 ........................ 37 Restricted Assets ................................................................................................................. 3 ........................ 39 Deposits and Investments.................................................................................................... 4 ........................ 39 Fund Balances ..................................................................................................................... 5 ........................ 44 Receivables and Due From Other Governments................................................................. 6 ........................ 45 Capital Assets...................................................................................................................... 7 ........................ 46 Interfund Balances and Activity ......................................................................................... 8 ........................ 49 Debt Obligations ................................................................................................................. 9 ........................ 50 Reconciliation of Budget Basis to GAAP......................................................................... 10........................ 56 Deficit Net Assets ............................................................................................................. 11........................ 56 Excesses of Expenditures Over Appropriations................................................................ 12........................ 57 Employees Retirement Plans ........................................................................................... 13........................ 57 Other Postemployment Benefits (OPEB) ......................................................................... 14........................ 60 Property Taxes .................................................................................................................. 15........................ 61 Risk Management ............................................................................................................. 16........................ 62 Commitments and Contingencies ..................................................................................... 17........................ 63 Landfill Closure and Postclosure Care Costs.................................................................... 18........................ 65 Fair Value of Financial Instruments.................................................................................. 19........................ 66 Segment Information......................................................................................................... 20........................ 66 Pledged Revenues ............................................................................................................. 21........................ 68

ii

Note Page Public Building Commission ............................................................................................ 22........................ 69 Joint Antelope Valley Authority ....................................................................................... 23........................ 69 Jointly Governed Organizations........................................................................................ 24........................ 70 Subsequent Events ............................................................................................................ 25........................ 70 Required Supplementary Information: Schedule of Funding Progress for PFDP Pension.......................................................................................... 72 Schedule of Employer Contributions for PFDP Pension ............................................................................... 72 Schedule of Funding Progress for City OPEB............................................................................................... 72 Combining and Individual Fund Statements and Schedules: Governmental Funds: Combining Balance Sheet General Fund ................................................................................................ 76 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances General Fund........................................................................................................................................ 77 Combining Balance Sheet Nonmajor Governmental Funds ................................................................... 79 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds........................................................................................................... 80 Subcombining Balance Sheet Nonmajor Special Revenue Funds .......................................................... 84 Subcombining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Special Revenue Funds....................................................................................................... 86 Subcombining Balance Sheet Nonmajor Debt Service Funds ................................................................ 90 Subcombining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Debt Service Funds............................................................................................................. 91 Subcombining Balance Sheet Nonmajor Capital Projects Funds............................................................ 94 Subcombining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Capital Projects Funds ........................................................................................................ 95 Subcombining Balance Sheet Nonmajor Permanent Funds .................................................................... 98 Subcombining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Permanent Funds ................................................................................................................ 99 Schedules of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual (Budget Basis): Cable Access Television Fund .......................................................................................................... 101 Lincoln City Libraries Fund .............................................................................................................. 102 Lincoln/Lancaster County Health Fund ............................................................................................ 103 Social Security Fund ......................................................................................................................... 104 StarTran Fund.................................................................................................................................... 105 Keno Fund ......................................................................................................................................... 107 Federal Grants Fund .......................................................................................................................... 108 Building & Safety Fund .................................................................................................................... 110 Library Special Trust Fund ............................................................................................................... 111 Tax Allocation Projects Debt Service Fund ...................................................................................... 112 Bond Interest & Redemption Debt Service Fund.............................................................................. 113 Tax Supported Bonds Debt Service Fund ......................................................................................... 114 Community Health Permanent Endowment Fund ............................................................................ 115 Athletic Field & Facilities Improvement Fund ................................................................................. 116 Lincoln Area Agency on Aging Fund ............................................................................................... 117 911 Communication Fund ................................................................................................................. 118 Unemployment Compensation Fund................................................................................................. 119 Development Services Center Fund .................................................................................................. 120 Proprietary Funds: Combining Statement of Net Assets Nonmajor Enterprise Funds ........................................................ 122 Combining Statement of Revenues, Expenses, and Changes in Fund Net Assets Nonmajor Enterprise Funds ............................................................................................................... 123 Combining Statement of Cash Flows Nonmajor Enterprise Funds....................................................... 124 Combining Statement of Net Assets Internal Service Funds ................................................................ 126 Combining Statement of Revenues, Expenses, and Changes in Fund Net Assets Internal Service Funds ....................................................................................................................... 128 Combining Statement of Cash Flows Internal Service Funds............................................................... 130 Agency Funds: Combining Balance Sheet Agency Funds ............................................................................................. 134 Combining Statement of Changes in Assets and Liabilities Agency Funds ......................................... 136

iii

Generally accepted accounting principles require that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of managements discussion and analysis (MD&A). This letter of transmittal is designed to complement MD&A and should be read in conjunction with it. The Citys MD&A can be found in the Financial Section immediately following the report of the independent accountants. Profile of the City The City of Lincoln, capital city of Nebraska, was originally incorporated on April 7, 1869. Lincoln is located in the southeastern corner of the state, is midway between Chicago and Denver, and is currently one of the fastest growing metro areas in the Midwest. It occupies a land area of approximately 90 square miles, serves a population of over 262,000, and in its growth and development has annexed five other municipalities so that the City includes most of the urban area of Lancaster County. It enjoys a unique position in Nebraska as the center of the states governmental and educational activities. The City operates under a Home Rule Charter and has a Mayor-Council form of government with an elected full-time chief executive, the Mayor, and an elected legislative body, the Council, composed of seven members. Three Council members are elected at large and four by district on a nonpartisan basis for a term of four years. All legislative powers of the City are exclusively vested in the Council, as well as the power to adopt the budget, set the tax levy, and equalize taxes and assessments. The Mayor is responsible for the proper conduct of the affairs of the City, with the administration of City government performed under the direction of the Mayor through administrative departments. The City of Lincoln provides a full range of services, including public safety (police and fire); the construction and maintenance of highways, streets, and other infrastructure; health; planning and zoning; golf courses, parks and recreation; urban development; mass transportation; ambulance transport; electric, water, and wastewater utilities; solid waste management; auditorium; parking facilities; and general administrative services. The City Council exercises budgetary and/or rate setting authority over the City Library and Lincoln Electric System (LES), neither of which are legally separate from the City and are thus included as part of the primary government. The Lincoln Water System, Lincoln Wastewater System, Emergency Medical Services, Solid Waste Management, Parking Facilities and Lots, Golf Courses, Pershing Municipal Auditorium, and Community Health Endowment are all part of administrative departments under the direction of the Mayor and are included as part of the primary government. The City is considered to be financially accountable for the West Haymarket Joint Public Agency, and has included the Agency as part of the primary government as a blended component unit. Separately audited financial statements are available for LES, Lincoln Water System, Lincoln Wastewater System, Emergency Medical Services, Solid Waste Management, Parking System, Community Health Permanent Endowment Trust, and West Haymarket Joint Public Agency. Beginning with the fiscal year 2012/2013, the City of Lincoln converted to adopting a biennial budget. The biennial budget serves as the basis for the City of Lincolns financial planning and control. Following public hearings and not later than five days prior to the beginning of the biennium, the budget is legally adopted by resolution of the City Council. Appropriation controls are required at the department level, however, as a matter of policy and practice, appropriations generally are controlled at the next level of organization (division) or by fund within a department. The Mayor has the authority to transfer balances within a department as well as lower appropriations in any fund where actual revenues are less than appropriated in order to avoid incurring a budget deficit for the year. Appropriation transfers between departments may only be authorized by resolution of the City Council. The Council may not make any appropriations in addition to those authorized in the biennial budget, except in the event of an emergency threatening serious loss of life, health, or property in the community.

viii

Economic Condition and Outlook Population growth is one of the best indicators of a community's economic well-being. As such, the Lincoln metropolitan area's population growth during the past several years reflects a community that is economically viable and is strongly positioned to meet future challenges. The Lincoln metropolitan area population base (Lancaster County) continues to demonstrate a pattern of sustained growth. According to the U. S. Census figures, the Lincoln metropolitan area population grew by 83.80 percent since 1960. Lancaster Countys rate of growth between 2000 and 2010 has been 14.0 percent or approximately 1.28 percent per year. The 2011 population of Lancaster County has been estimated to be in excess of 289,000 persons. While such a growth rate may be modest by some standards, this healthy pace of expansion places Lincoln as one of the fastest growing communities in this region. Recent projections envision Lincoln to continue to grow at a rate of over 1% per year. As importantly, the City of Lincoln continues to absorb about 90% of all growth in Lancaster County. Lincolns unemployment rate at August 31, 2012, was 3.4%, well below the national average of 8.95%, with employment strongest in the categories of government, educational & health services, and retail trade. While Lincolns current number of construction permits is down 3% when compared to levels 5 years ago, there is an increase in the value of construction permits of over $29 million. To more aggressively pursue economic opportunities, the City, Lancaster County, and LES have partnered to hire an economic development coordinator to facilitate job creation in the private sector. In addition, the Mayors Technology Council completed its technology audit, which led to a new strategic plan for economic development. Net sales and use tax revenue increased $4,392,451 or 7.6% from the previous fiscal year. In relation to this primary revenue source, the City is seeing signs of recovery from the negative economic factors that have affected the local and national economies. Long-Term Planning and Major Initiatives Urban Development The City anticipates approximately $21 million of public expenditures funded through various urban development projects and programs over the next three years. These projects are varied in type and size and are located in the Downtown and Haymarket areas, North 27th Street and Havelock business areas, Focus Area neighborhoods, the South Capitol blight area, the Antelope Valley project area, West O, and in lowmoderate income neighborhoods throughout the City. Financing will be provided by a variety of sources, including Tax Increment Financing (TIF), Parking Revenues, CDBG, HOME, Neighborhood Stabilization Program (NSP) grants, Advanced Land Acquisition funds, Special Assessments, and General Fund. Funding is often combined with developer, grant or other private sector funds. The Citys involvement will vary depending upon the project and could likely include property acquisition, relocation and demolition; housing rehabilitation and development; commercial development; and construction of public improvements including parking, sidewalks, infrastructure and streetscapes.

ix

Ongoing and anticipated future projects include:  Downtown Redevelopment Projects: 1) Civic Plaza 13th & P Street project. 2) West Haymarket Residential/Retail/Hotel project. 3) West Haymarket Office/Retail project. 4) Construction of Lumberworks parking garage. 5) Telesis/Meadow Gold project. 6) Haymarket Hotel and Tool House. 7) N Street bikeway project. 8) P Street Retail Corridor & Streetscape. 9) Centennial Mall project. 10) 17th & Q/Credit Union project. 11) Replace downtown meters with advanced technology. 12) Landmark III project. 13) Lumberworks liner development project. 14) 18th & Q mixed use development project. 15) Pershing redevelopment project.

 

North 27th Street redevelopment efforts are focusing on the acquisition of blighted properties and assembly for redevelopment and new housing construction. Antelope Valley Redevelopment Projects: 1) Antelope Creek Village. 2) 21st & N redevelopment project. Havelock Redevelopment on-going projects include streetscape improvements, commercial building facade improvements, and park improvements. University Place redevelopment of the former Greens Plumbing site. West O Street redevelopment projects and historic DLD marker project. NW Corridor redevelopment (West Cornhusker Highway). Innovation Campus redevelopment. 84th and Havelock redevelopment. South Capitol redevelopment. 56th and Arbor Road redevelopment. Focus area projects in South Capitol. 11th Street streetscape. Prescott Street streetscape, 47th to 48th. 1st & Cornhusker Hwy redevelopment. Surplus property issues/resolution. Housing rehabilitation programs for quality, affordable housing and home ownership: 1) Continuation of First-time Homebuyer and Owner-Occupied Housing Rehabilitation Loan programs. 2) Partner with NeighborWorks-Lincoln for their Home Ownership Zone in Antelope Valley. 3) Partner with other non-profit and for-profit housing organizations for affordable housing projects in low-to-moderate income neighborhoods under the Mayors Stronger Safer Neighborhoods Program. 4) Manage the local affordable housing effort made possible by Federal Economic Stimulus Programs. Real estate major acquisition, negotiation and relocation projects: 1) For effective transportation:
West Haymarket projects.
Pine Lake Road, 59th to Hwy 2. th th
Yankee Hill Roadway, 70 to 84 Street.
14th & Cornhusker Hwy safety project. th
SW 40 Street overpass.
33rd & Cornhusker Hwy RTSD project. th
14 Street, Superior to Alvo Road.
14th/Old Cheney/Warlick intersection. th
56 Street, Old Cheney to Shadow Pines.
Arterial/residential rehabs, executive
Coddington & West Van Dorn order, traffic signal, and Federal intersection improvements. Infrastructure Stimulus funded projects.
Old Cheney Road, 70th to 84th Street.

             



N 33rd, P to Holdrege. East Beltway preliminary acquisitions. South Beltway preliminary acquisitions.

2) For environmental quality:
Park sites citywide.
Stevens Creek sanitary sewer Phase III, IV & V.
Yankee Hill water main, 56th to 84th Street.
98th Street water main, Holdrege to Alvo.
West O sanitary sewer lift station.
6th & Old Cheney Road drainage project. 3)



 Relocation activities: North 27th Street projects. West Haymarket projects. 1st & Cornhusker Hwy project. 14th/Old Cheney/Warlick intersection project.

Storm water bond projects. Miscellaneous sanitary sewer upgrade projects. Conservation easements and wetlands acquisitions. Additional projects made possible by Federal Infrastructure Stimulus funds.

Workforce Investment Act funds received by the City provide employment skills to low-income adults and youth and also to individuals laid-off from area employers. Funding is provided for GED, Adult Education and Literacy Activities, secondary and post-secondary education, and placement in work experience and On-the-Job Training (OJT) with an emphasis on high wage and high demand occupations. Services are provided from the Career Center located in the Golds Building. Partner agencies colocated at the Center include Goodwill Industries, Vocational Rehabilitation, Nebraska Department of Labor, and Experience Works. Annually over 30,000 job seeker customer visits are made to the Center and over 500 employers use the Center services. Examples of specialized projects this year include: 1) The Metro SyNErgy project in Lincoln and Omaha providing training in green building technology to unemployed and incumbent workers. 2) A specialized work readiness class for youth, which combines literacy and numeracy training, GED preparation and work readiness curriculum done in collaboration with Southeast Community College. 3) Project Everlast building a system to support youth transitioning from foster care by addressing employment, housing, education and health care needs. 4) Regional Innovation Network fostering collaboration of education, economic development and workforce development leaders in a twelve county southeast Nebraska area focusing training and job placement efforts to the target industries of:
Agriculture & Life Sciences.
Advanced Manufacturing.
Transportation & Logistics.
Health Services, and Business Services & Information Technology.

West Haymarket Project The West Haymarket Redevelopment Project is a multi-faceted endeavor to revitalize underutilized property that lies on the western edge of Lincolns downtown and Haymarket district. On May 11, 2010, the citizens of Lincoln voted to approve the issuance of arena bonds, which signaled approval for the project to proceed. The project involves the relocation and elimination of existing railroad tracks and completion of other site preparation activities, the construction of a 15,223 seat civic arena, a community ice center, private retail and office space, a new Amtrak Station, residential units, surface and decked parking, public gathering areas,

xi

street and utility improvements, landscaping, trails and walkways, pedestrian bridges, and environmental enhancements. The public portion of the project cost is estimated to be approximately $346 million. The West Haymarket Joint Public Agency (WHJPA) is the governmental agency responsible for oversight of the project, for issuing bonds, collecting revenue, and making bond payments over the course of the Project. Participants in the agency are the City and the Board of Regents of the University of Nebraska. Beginning January 1, 2011, an occupation tax was imposed on car rental, hotel, restaurant and bar charges within the City of Lincoln. This revenue has been pledged to repayment of any outstanding WHJPA bonds. Antelope Valley Project The City of Lincoln, Lower Platte South Natural Resource District and the University of Nebraska-Lincoln have joined together through an interlocal agreement to form the Joint Antelope Valley Authority (JAVA). JAVA is in the process of implementing the Antelope Valley project, which consists of storm water, transportation and community revitalization strategies. The project has been successful in removing about 1,000 structures from the floodplain by creating an open waterway from Salt Creek Roadway to J Street. Traffic improvements include 12 new or replacement bridges, the elimination of railroad crossings, and 6.2 miles of new roadway including the Big X elevated intersection near the Devaney Sports Center. In addition to the new Union Plaza Park and new trails, revitalization efforts include the Assurity headquarters, Turbine Flats, several housing developments, the Jayne Snyder Trails Center, Fleming Fields and infrastructure improvements. Other redevelopment projects will progress as a result of the re-mapping of the floodplain. The last remaining JAVA project, which is landscaping of Antelope Valley Parkway between K and P streets as well as landscaping of O Street between 17th and 21st streets, will be completed in 2013. The entire project is projected to cost $246 million, which includes all components of the Antelope Valley project: community revitalization, flood control, and transportation. Wastewater System The Lincoln Wastewater System is projecting a capital improvements program in the amount of approximately $53,836,000 over the 6-year period of fiscal year 2012-13 through fiscal year 2017-18. Of that total, approximately $28,160,000 will be financed by revenue bonds, approximately $3,170,000 will be financed by impact fees, with the remaining $22,506,000 to come from utility revenue fees. The majority of these dollars are needed for replacement and maintenance of existing infrastructure, new infrastructure to serve development in various basins throughout the City, and improvements to both the Theresa Street and Northeast treatment plants. Water System The Lincoln Water System is projecting a capital improvements program in the amount of approximately $76,600,000 over the 6-year period of fiscal year 2012-13 through 2017-18. Of these dollars, approximately $8,800,000 will be financed through revenue bonds, approximately $4,800,000 will be financed from TIF funding, approximately $5,700,000 will be financed through impact fees, with the balance of $57,300,000 coming from utility revenue fees. The major projects contributing to these total dollars include the installation of transmission lines, replacement mains, replacement and new wells, and additional storage reservoirs.

xii

Streets and Highways The 2013-2018 Streets and Highways capital improvements program and Transportation improvement program identify average annual expenditures of $28 million for the next six years. Funding for these projects includes $130 million in City revenues, $33 million in federal aid, and $3 million in other funds. Infrastructure Impact Fees The Citys growth in both population and employment have created demands for new residential and nonresidential development, which in turn creates the need for additional public facilities, including water and wastewater systems, arterial streets, and neighborhood parks and trails. The Citys laws, taxes, fees, utility charges, and other forms of revenue generated from new development do not provide sufficient funds to finance these new facilities. In response to these funding needs the City of Lincoln passed an ordinance to provide for the imposition of impact fees to ensure that facilities are available to serve new growth and that new development bears its proportionate share of the cost of improvements to the Citys facilities. Impact fees for all types of new construction have been set and adopted by the City Council and began June, 2003. Pension Costs The City currently contributes $2 for every $1 contributed by employees in the civilian retirement plans. In an effort to control this significant budget item, the City and the civilian unions, as well as non-union employees, have agreed to change these plans to a $1.29 to $1 match for new employees hired after a union specific effective date. Newly hired Department Directors and Mayoral Aides will receive a $1 to $1 match. The City is unable to legally change the match for current employees. The City anticipates saving 20 to 25 percent in retirement costs for each employee hired under this new arrangement. Property Tax Collections As of August 31, 2012, current tax collections by the County Treasurer were 97.16% of the tax levy, an increase of .47% from last year. Allocations of property tax levy by purpose are as follows: City Tax Levy by Purpose General Fund Library Social Security Police and Fire Pension General Obligation Debt Total Parking Facilities The City of Lincoln operates the following parking garages: Facility Center Park Cornhusker Square University Square Que Place Carriage Park Market Place Haymarket Larson Building Number of Stalls 1,048 405 436 773 710 433 409 647 Date Opened November, 1978 December, 1983 April, 1990 October, 1994 February, 1995 August, 2000 August, 2002 July, 2012 2011-2012 .1876 .0400 .0163 .0348 .0371 .3158 2010-2011 .1739 .0398 .0141 .0261 .0340 .2879 2009-2010 .1772 .0398 .0097 .0251 .0361 .2879

xiii

The Citys parking garages have been built to promote downtown redevelopment efforts by working with private industry in providing necessary parking to various businesses in the downtown area. Revenue generated by the parking facilities and on-street parking meters, as well as undesignated street construction funds, are pledged for debt service of the 2001 Parking Revenue Bonds, the 2010B Parking Revenue Bonds, and the 2011 Parking Revenue and Refunding Bonds. Comparative data for the past two fiscal years are presented in the following table: 2011-2012 2010-2011 Operating Revenues Operating Income Before Depreciation Debt Service Debt Service Coverage Ratio Solid Waste Management The City of Lincoln owns and operates a municipal solid waste landfill and a construction and demolition debris landfill that are subject to the U.S. Environmental Protection Agency rule Solid Waste Disposal Facility Criteria, which establishes closure and postclosure care requirements. As of August 31, 2012, the City estimates that it will incur costs approximating $22 million to adhere to such requirements (see Note 18 of Notes to the Financial Statements). Water and Wastewater System The City's Wastewater Utility System showed an increase in operating revenues and an increase in operating income. Comparative data for the past two fiscal years is presented in the following table: Wastewater System Operating Revenues Operating Income Revenue Available For Debt Service Debt Service Debt Service Coverage Ratio 2011-2012 $24,097,998 4,404,875 12,385,302 6,793,014 1.82 2010-2011 22,973,653 3,301,436 11,022,406 6,512,609 1.69 $ 7,353,847 3,503,716 1,944,138 1.80 7,124,602 3,518,594 1,944,138 1.81

The City's Water Utility System showed an increase in operating revenues and an increase in operating income. Comparative data for the past two fiscal years is presented in the following table: Water System Operating Revenues Operating Income Revenue Available For Debt Service Debt Service Debt Service Coverage Ratio Lincoln Electric System (LES) The City owns and operates its own electric utility system that is managed by an administrative board. Actions of the board with regard to rates, budgets, and long-term financing are subject to final review and approval by the City Council. In accordance with Section 4.24.090 of the Lincoln Municipal Code, LES operates on a January 1 - December 31, fiscal year. Audited financial information as of and for LES' fiscal year ended December 31, 2011, is included in the City's August 31, 2012, financial statements. 2011-2012 $34,150,292 10,984,826 20,348,397 8,335,202 2.44 2010-2011 28,559,484 5,459,411 15,174,479 9,501,857 1.60

xiv

[YL

xvii

FINANCIAL SECTION

Independent Accountants Report on Financial Statements and Supplementary Information

The Honorable Mayor and Members of the City Council City of Lincoln, Nebraska

We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Lincoln, Nebraska (the City) as of and for the year ended August 31, 2012, which collectively comprise the City of Lincolns basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Citys management. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of Lincoln Electric System which represent 58%, 35% and 75%, respectively, of the total assets, net assets and revenues of the business-type activities. Those financial statements were audited by other accountants whose report thereon has been furnished to us, and our opinion, insofar as it relates to the amounts included for Lincoln Electric System, is based solely on the report of the other accountants. The prior-year summarized comparative financial information in these statements has been derived from the Citys basic financial statements as of and for the year ended August 31, 2011, and in our report dated February 17, 2012, we expressed unqualified opinions on the respective financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of the other accountants provide a reasonable basis for our opinions. In our opinion, based on our audit and the report of other accountants, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Lincoln, Nebraska as of August 31, 2012, and the respective changes in financial position and cash flows, where applicable, thereof and the respective budgetary comparison for the general fund and street construction fund for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Accounting principles generally accepted in the United States of America require that the managements discussion and analysis and the schedules of funding progress and employer contributions listed in the table of contents be presented to supplement the basic financial statements. Such information, although not part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with managements responses to our inquiries, the basic financial statements and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Citys basic financial statements. The accompanying introductory section as listed in the table of contents is presented for purposes of additional analysis and is not part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it.

February 25, 2013

MANAGEMENTS DISCUSSION AND ANALYSIS The management of the City of Lincoln, Nebraska (the City) offers readers of the Citys financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended August 31, 2012. Please consider this discussion in conjunction with the additional information provided in the Letter of Transmittal (beginning on page vii) and the transactions, events and conditions reflected in the Citys financial statements (beginning on page 16). FINANCIAL HIGHLIGHTS
The assets of the City exceeded its liabilities at August 31, 2012, by $1,673,248,992 (net assets). Of this amount, $381,489,582 (unrestricted net assets) may be used to meet the governments ongoing obligations to citizens and creditors. The Citys total net assets increased by $73,357,160. Of this amount, $41,781,745, or 57 percent, was an increase in governmental activities and $31,575,415, or 43 percent, related to business-type activities. As of August 31, 2012, the Citys governmental funds reported combined ending fund balances of $353,770,357, a decrease of $72,725,985 in comparison with the prior year, as the West Haymarket JPA Fund continues to spend bond proceeds on redevelopment projects. Of this total fund balance, 7 percent, or $25,439,612, is available for spending at the Citys discretion (unassigned fund balance). As of August 31, 2012, unrestricted fund balance (the total of committed, assigned, and unassigned fund balance) for the general fund was $38,990,723, or 34 percent of total general fund expenditures. Due to the implementation of GASB Statement No. 54, reference must be made to page 76 of this report for an accurate comparison of the Citys General funds based on the structure used for budgeting. The Citys total bonded debt decreased by $37,505,000 (3 percent) during the current fiscal year. The city issued $85,370,000 in refunding bonds in the current year for a net present value savings of $10,789,855.

OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the Citys basic financial statements. The Citys basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements. GOVERNMENT-WIDE FINANCIAL STATEMENTS The government-wide financial statements are designed to provide readers with a broad overview of the Citys finances, in a manner similar to a private-sector business. The statement of net assets presents information on all of the Citys assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities presents information showing how the Citys net assets changed during the year ended August 31, 2012. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City include general administrative services, public safety, streets and highways, health, planning and zoning, parks and recreation, libraries, aging services, job 5

programs, urban development, mass transportation, engineering, self-insurance, and fleet management. The business-type activities of the City include water, wastewater and electric utilities; ambulance transport; solid waste management; golf courses; auditorium; and parking. The government-wide financial statements can be found on pages 16-17 of this report. FUND FINANCIAL STATEMENTS A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating the Citys near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the governments near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains thirty-one individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General fund, the Street Construction fund, and the West Haymarket JPA fund, which are considered to be major funds. Data from the other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of the nonmajor governmental funds is provided in the form of combining statements elsewhere in this report. The City adopts an annual appropriated budget for its general fund and most other governmental funds. A budgetary comparison statement has been provided for the General and Street Construction major funds to demonstrate compliance with this budget. The West Haymarket JPA major fund is not required to adopt an annual budget so a budgetary comparison has not been provided. The basic governmental fund financial statements can be found on pages 18-23 of this report. Proprietary funds The City maintains two different types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for its parking facilities and lots; golf courses; auditorium; solid waste management; ambulance services; and wastewater, water, and electric systems. Internal service funds are used to accumulate and allocate costs internally among the Citys various functions. The City uses internal service funds to account for its data processing, engineering, insurance, fleet management, municipal services center operations, telecommunications, and copy services. Because these services predominantly benefit governmental rather than business-type functions, they have been included within governmental activities in the government-wide financial statements. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the Water, Wastewater and Electric Systems, all of which are considered to be major funds of the City. Data from the other enterprise funds are combined into a single, aggregated presentation. Internal service funds are also combined into a single, aggregated presentation in the proprietary fund financial statements. Individual fund data for these funds is provided in the form of combining statements elsewhere in this report. The basic proprietary fund financial statements can be found on pages 24-26 of this report.

Fiduciary funds Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the Citys own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The fiduciary fund financial statements can be found on pages 27-28 of this report. NOTES TO THE FINANCIAL STATEMENTS The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 30-71 of this report. OTHER INFORMATION In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the Citys progress in funding its obligation to provide pension benefits to its police and fire employees, and to provide other postemployment benefits. Required supplementary information can be found on page 72 of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net assets may serve over time as a useful indicator of a governments financial position. In the case of the City, assets exceeded liabilities by $1,673,248,992 at August 31, 2012. By far the largest portion of the Citys net assets (60 percent) reflects its investment in capital assets (e.g., land, buildings, improvements, utility plant, infrastructure, and machinery and equipment), less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the Citys investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities.
City Of Lincoln Condensed Statements of Net Assets August 31, 2012 and 2011 Governmental Activities Current and Other Assets Capital Assets Total Assets Long-Term Liabilities Outstanding Other Liabilities Total Liabilities Net Assets: Invested in Capital Assets, Net of Related Debt Restricted Unrestricted Total Net Assets $ 2012 596,213,973 821,891,490 1,418,105,463 500,195,032 37,731,545 537,926,577 2011 651,101,529 713,530,269 1,364,631,798 504,062,995 22,171,662 526,234,657 Business-type Activities 2012 288,936,045 1,449,783,695 1,738,719,740 750,069,512 195,580,122 945,649,634 2011 247,265,929 1,437,335,316 1,684,601,245 766,638,529 156,468,025 923,106,554 2012 885,150,018 2,271,675,185 3,156,825,203 1,250,264,544 233,311,667 1,483,576,211

Total 2011 898,367,458 2,150,865,585 3,049,233,043 1,270,701,524 178,639,687 1,449,341,211

405,635,743 246,533,919 228,009,224 880,178,886

386,451,715 235,695,091 216,250,335 838,397,141

608,119,231 31,470,517 153,480,358 793,070,106

622,950,944 31,480,358 107,063,389 761,494,691

1,013,754,974 278,004,436 381,489,582 1,673,248,992

1,009,402,659 267,175,449 323,313,724 1,599,891,832

An additional portion of the Citys net assets (17 percent) represents resources that are subject to external restrictions on their use. The remaining balance of unrestricted net assets (23 percent) may be used to meet the governments ongoing obligations to citizens and creditors. At August 31, 2012, the City is able to report positive balances in all three categories of net assets, both for the government as a whole, as well as for its separate governmental and business-type activities.

City Of Lincoln Condensed Statements of Activities For the Years Ended August 31, 2012 and 2011 Governmental Activities 2012 2011 Revenues: Program Revenues: Charges for Services Operating Grants and Contributions Capital Grants and Contributions General Revenues: Property Tax Sales and Use Tax Occupation Tax Other Taxes Unrestricted Grants and Contributions Unrestricted Investment Earnings Other Total Revenues Expenses: General Government Public Safety Streets and Highways Culture and Recreation Economic Opportunity Health and Welfare Mass Transit Equipment Management Engineering Services Interest on Long-Term Debt Parking Golf Courses Entertainment Facilities Solid Waste Management Ambulance Transport Wastewater Water Electric Total Expenses Increase in Net Assets Before Transfers Transfers Increase in Net Assets Net Assets - Beginning Net Assets - Ending Business-type Activities 2012 2011

Total 2012 2011

49,728,220 51,263,862 32,043,686 53,302,884 62,388,551 25,732,963 18,455,537 93,633 1,014,773 2,623,024 296,647,133 40,635,824 82,915,183 38,319,958 28,049,044 16,840,478 21,414,951 12,463,592 1,162,325 1,900,278 20,417,899 264,119,532 32,527,601 9,254,144 41,781,745 838,397,141 880,178,886

46,426,307 73,594,748 7,982,667 48,621,668 57,996,100 20,403,399 16,378,863 1,927,588 1,370,358 2,309,497 277,011,195 40,059,839 81,218,142 39,840,551 26,578,448 16,336,855 21,153,869 12,007,410 1,882,136 1,219,084 11,568,353 251,864,687 25,146,508 2,678,029 27,824,537 810,572,604 838,397,141

350,507,113 6,731,837 2,048,615 983,824 380,531 360,651,920 5,933,848 3,762,650 2,487,417 8,080,971 4,148,850 23,017,798 25,908,587 250,676,000 324,016,121 36,635,799 (5,060,384) 31,575,415 761,494,691 793,070,106

335,205,232 4,645,062 2,059,361 1,564,708 343,835 343,818,198 5,632,973 3,414,074 2,202,234 8,490,392 3,940,669 23,135,157 26,084,158 242,743,000 315,642,657 28,175,541 (2,678,029) 25,497,512 735,997,179 761,494,691

400,235,333 51,263,862 38,775,523 53,302,884 62,388,551 27,781,578 18,455,537 93,633 1,998,597 3,003,555 657,299,053 40,635,824 82,915,183 38,319,958 28,049,044 16,840,478 21,414,951 12,463,592 1,162,325 1,900,278 20,417,899 5,933,848 3,762,650 2,487,417 8,080,971 4,148,850 23,017,798 25,908,587 250,676,000 588,135,653 69,163,400 4,193,760 73,357,160 1,599,891,832 1,673,248,992

381,631,539 73,594,748 12,627,729 48,621,668 57,996,100 22,462,760 16,378,863 1,927,588 2,935,066 2,653,332 620,829,393 40,059,839 81,218,142 39,840,551 26,578,448 16,336,855 21,153,869 12,007,410 1,882,136 1,219,084 11,568,353 5,632,973 3,414,074 2,202,234 8,490,392 3,940,669 23,135,157 26,084,158 242,743,000 567,507,344 53,322,049 53,322,049 1,546,569,783 1,599,891,832

GOVERNMENTAL ACTIVITIES Governmental activities increased the Citys net assets by $41,781,745, accounting for 57 percent of the total growth in the net assets of the City of Lincoln. Key elements of this increase are as follows:


The Citys current year contribution to the Joint Antelope Valley Authority amounted to $9,729,227, of which a significant portion is federally funded. Sales taxes increased by approximately $4.4 million (7.6 percent) during 2012 after showing an increase of 4.8 percent in the prior year. Occupation taxes increased by approximately $5.3 million (26 percent) in the current year. In January, 2011, the City imposed a 2 percent tax on bar and restaurant revenues and a 4 percent tax on car rental and hotel revenues, to be used to finance the JPA activities and repayment of the Agencys outstanding debt.

Expenses and Program Revenues - Governmental Activities

90,000,000
80,000,000
70,000,000
60,000,000
50,000,000
40,000,000
30,000,000
20,000,000
10,000,000
0
General Public Safety
Government
Streets and Highways
Culture and Recreation
Economic Opportunity
Health and Welfare
Mass Transit
Equipment Management
Engineering Services
Interest on Long-term Debt

Expenses

Revenues

Revenues By Source - Governmental Activities

Other Taxes
6.2%
Occupation Taxes
8.7%
Operating Grants and Contributions
17.3%

Other
1.3%

Charges For Services
16.8%

Sales Taxes
21.0%

Property Taxes
18.0%

Capital Grants and Contributions
10.8%

BUSINESS-TYPE ACTIVITIES Business-type activities increased the Citys net assets by $31,575,415, accounting for 43 percent of the total growth in the governments net assets. Key elements of this increase are as follows:
Water System operating revenues increased by $5,590,808 (19.6 percent) from 2011. Water pumpage was up 20 percent due to the severe drought conditions experienced this past year. Operating expense increased marginally by $65,393 (.28 percent) due to cost cutting efforts made by the system. Wastewater System operating revenues increased $1,124,345 (4.9 percent) primarily due to a 5% user fee increase implemented with the billings starting in February, 2012. Sanitary sewer bills for residential customers are based on water usage during a two-month period during the winter and remain 9

the same over the balance of the following ten-month period. Non-residential customers are billed for sanitary sewer based on their monthly water usage.
Lincoln Electric System operating revenue in 2011 was 3 percent higher than 2010. Retail revenue was 2 percent higher due to the impact of a 2.5 percent increase on January 1, 2011. Wholesale revenue increased 5 percent with an energy sales increase of 11 percent. The new city dividend for utility ownership, which started September 2011, added $2.0 million to operating revenue. LES recorded capital contributions of approximately $1.1 million. Lincoln Water and Wastewater Systems reported capital contributions of approximately $1.8 million and $2.1 million, respectively.

Expenses And Program Revenues - Business-type Activities

300,000,000
250,000,000
200,000,000
150,000,000
100,000,000
50,000,000
0
Non Major Funds
Wastewater
Water
Electric

Expenses
Revenues

Revenues By Source - Business-type Activities

Capital Grants and Contributions
1.9%

Other
0.9%

Charges For Services
97.2%

10

FINANCIAL ANALYSIS OF THE GOVERNMENTS FUNDS As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. GOVERNMENTAL FUNDS The focus of the Citys governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the Citys financing requirements. In particular, unassigned fund balance may serve as a useful measure of a governments net resources available for discretionary spending at the end of the fiscal year. As of August 31, 2012, the Citys governmental funds reported combined ending fund balances of $353,770,357, a decrease of $72,725,985 in comparison with the prior year. Of this total amount, 7 percent constitutes unassigned fund balance, which is available for spending at the Citys discretion. The remainder of fund balance is either nonspendable, restricted, committed, or assigned to indicate that it is not in spendable form ($5,785,566), legally required to be maintained intact ($37,160,000), restricted for particular purposes ($249,625,706), committed for particular purposes ($805,612), or assigned for particular purposes ($34,953,861). The General Fund is the chief operating fund of the City. At August 31, 2012, the unrestricted fund balance of the General Fund was $38,990,723, while total fund balance reached $49,101,273. As a measure of the General Funds liquidity, it may be useful to compare both unrestricted fund balance and total fund balance to total fund expenditures. Unrestricted fund balance represents 34 percent of total general fund expenditures, while total fund balance represents 43 percent of that same amount. The fund balance of the Citys General Fund increased by $7,347,437 during 2012. For the 2013 fiscal year, appropriated General Fund balance, used as a funding source for the budget, decreased by 40.6 percent over 2012. It is expected to increase for the 2014 fiscal year. The City has converted to a biennial budget and allocation of balances is spread over a two-year budget cycle. The Street Construction Fund had a total fund balance of $31,824,184, which is to be used in the construction and maintenance of streets and highways. The net decrease in fund balance during 2012 in the Street Construction Fund was $(4,654,384), the result of ongoing projects expenditure of available bond proceeds. The West Haymarket JPA Fund had a fund balance of $147,191,453, which is to be used for funding improvements of the West Haymarket Redevelopment Project. The current year change in fund balance of $(78,241,451) was expected as bond proceeds are spent on the redevelopment projects. PROPRIETARY FUNDS The Citys proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. Unrestricted net assets of the Wastewater System, Water System, Electric System, and other enterprise funds amounted to $22,234,152, $25,728,471, $109,762,000 and $(4,244,265), respectively, at August 31, 2012 (December 31, 2011 for LES). Factors concerning the finances of these funds have already been addressed in the discussion of the Citys business-type activities.

11

GENERAL FUND BUDGETARY HIGHLIGHTS Differences between the original budget and the final amended budget were relatively minor (increase of $207,042) and can be briefly summarized as follows:
$35,000 reduction in intergovernmental revenue. Expenditure appropriations:
$(558,255) in miscellaneous changes in general government activities.
$497,418 in increases allocated to public safety.
$(33,018) in decreases to streets & highways.
$(46,632) in decreases allocated to parks and recreation.
$312,529 in increases allocated for General Fund transfers to other City funds. Variances between actual General Fund revenues and expenditures and the final amended budget include the following:





$2,300,100 positive variance in real estate and personal property tax. Actual property collections were 97.16 percent of the 2011 levy, while estimated tax revenue is based on 90 percent collections as provided by the City Charter. $2,817,168 positive variance in sales tax receipts. Collections exceeded projections that were based on prior years activity. $1,550,260 positive variance in occupation taxes as receipts exceeded conservative projections. $1,900,708 positive variance in miscellaneous general government expenditures. Significant savings were realized in several service line items that are reappropriated to cover ongoing future expenditures. $1,943,785 positive variance in police expenditures. Remaining balances are reappropriated to the next year to assist with one-time expenditures that are not ongoing operating expenditures. $(2,048,947) negative variance in street lighting function expenditures. This variance was the result of capital additions related to both normal construction as well as Antelope Valley Project construction.

CAPITAL ASSET AND DEBT ADMINISTRATION CAPITAL ASSETS The Citys investment in capital assets for its governmental and business-type activities as of August 31, 2012, amounts to $2,271,675,185 (net of accumulated depreciation). This investment in capital assets includes land, buildings, improvements, machinery and equipment, streets, bridges, storm sewers, electric plant, and water and sewer plant. The total increase in the Citys investment in capital assets for 2012 was 5.62 percent (a 15.19 percent increase for governmental activities and a .87 percent increase for business-type activities). Major capital asset events during 2012 included the following:

The City increased its investment in infrastructure, including streets, bridges, drainage and traffic systems, in excess of $34 million. The West Haymarket Joint Public Agency (JPA) increased its investment in capital assets by approximately $87 million, which includes roads and utility work, arena design and construction, site preparation, land purchases, and environmental remediation. The City parking systems investment in the Larson Building and Parking Garage increased by approximately $8.7 million.

12

City Of Lincoln Capital Assets (net of depreciation) August 31, 2012 and 2011
Governmental Activities 2012 2011 138,768,877 69,850,907 53,817,461 49,744,391 40,360,129 37,876,916 35,302,361 35,685,017 394,256,079 352,448,061 159,386,583 167,924,977 821,891,490 713,530,269 Business-type Activities 2012 24,232,300 140,391,808 450,950,888 12,765,467 761,574,000 59,869,232 1,449,783,695 2011 24,144,286 122,650,291 445,301,114 11,894,995 753,770,000 79,574,630 1,437,335,316 2012 163,001,177 194,209,269 491,311,017 48,067,828 761,574,000 394,256,079 219,255,815 2,271,675,185

Total 2011 93,995,193 172,394,682 483,178,030 47,580,012 753,770,000 352,448,061 247,499,607 2,150,865,585

Land $ Buildings Improvements Other Than Buildings Machinery and Equipment Utility Plant Infrastructure Construction-in-progress Total $

Additional information on the Citys capital assets can be found in Note 7 of the notes to the financial statements on pages 46-48 of this report. LONG-TERM DEBT At August 31, 2012, the City of Lincoln had total bonded debt outstanding of $1,120,728,000. Of this amount, $413,958,000 comprises debt backed by the full faith and credit of the City. The remainder of the Citys debt represents bonds secured solely by specified revenue sources (i.e., revenue bonds).
City Of Lincoln Outstanding Bonded Debt August 31, 2012 and 2011
(dollar amounts in thousands) Governmental Activities 2012 2011 413,958 419,663 5,210 5,920 419,168 425,583 Business-type Activities 2012 2011 701,560 732,650 701,560 732,650

Total 2012 413,958 5,210 701,560 1,120,728 2011 419,663 5,920 732,650 1,158,233

General Obligation Bonds Tax Supported Bonds Revenue Bonds Total

The Citys total bonded debt decreased by $37,505,000 (3 percent) in the current fiscal year. bonds were issued in the amount of $85,370,000 to refund $91,300,000 of outstanding bonds. The City maintains the following credit ratings:
Moody's Investors Service General Obligation Bonds West Haymarket JPA Bonds Antelope Valley Project Bonds Water Revenue Bonds Wastewater Revenue Bonds MBIA insured Underlying Parking Revenue Bonds Lincoln Electric System Revenue Bonds Commercial Paper tax exempt Aaa Aa1 Aa2 Aa2 Aaa Aa2 A1 Aa2 Standard And Poors AAA AAA AA AA AAA AA+ A AA A1+ Fitch Investors Service AA F1+

Refunding

Under the Citys Home Rule Charter, there is no legal debt limit. Additional information on the Citys long-term debt can be found in Note 9 of the notes to the financial statements on pages 50-56 of this report. 13

ECONOMIC FACTORS AND NEXT YEARS BUDGETS AND RATES The budget for 2012-2014 is the first biennial budget proposed for the City of Lincoln, and it is expected that the biennial budget process will save several thousand hours of staff time over the two-year period.
Property tax revenue required to fund the 2012-2014 budget increased $1,581,766 or 3.5 percent in the first year from the prior year, and $467,751 or 1 percent for the second year of the biennium. Total change in the tax base is estimated at 4.88 percent, with the tax rate of .31580 expected to remain the same for both years. The adequacy of fees charged for City service cost recovery is examined each year and some fee increases are included in each budget. Without periodic increases in fees, amounts collected, or other revenue adjustments, inflationary and other cost increases would need to be covered by additional property tax revenue or the levels of service provided would need to be reduced. Anticipated revenue adjustments in 2013 include an increase in parking meter rates, $750,000; increased Parks and Recreation program fees, $328,150; and additional alarm registration fees, lift assist charges, and hazardous material abatement fees, $387,500. Utility rates are increased by an average of 5 percent in both budget years; resulting in additional revenue of $1,400,000 in 2013 and $2,900,00 in 2014 for Water, and $1,100,000 in 2013 and $2,300,000 in 2014 for Wastewater. Sales tax collections for 2012 finished 4.80 percent ahead of projections. 2013 projections reflect a 3.82 percent increase over 2012 actual collections, with an additional 4 percent increase projected for 2014. Staffing changes included in the 2012-2014 budget result in a decrease for all funds of 6.81 full-time equivalents.

All of these factors were considered in preparing the Citys budget for the 2012-2014 fiscal years. REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the City of Lincolns finances for all those with an interest in the governments finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the City of Lincoln, Finance Department, 555 South 10th Street, Lincoln, NE 68508.

14

BASIC FINANCIAL STATEMENTS

15

CITY OF LINCOLN, NEBRASKA STATEMENT OF NET ASSETS AUGUST 31, 2012 With Summarized Financial Information as of August 31, 2011

Governmental Activities ASSETS Cash and Cash Equivalents Investments Receivables, (Net of Allowance for Uncollectibles) Internal Balances Due from Other Governments Inventories Plant Operation Assets Prepaid Items Deferred Charges and Other Assets Restricted Assets: Cash and Cash Equivalents Investments Receivables Investment in Joint Venture Capital Assets: Non-depreciable Depreciable (Net) Total Assets LIABILITIES Accounts Payable and Other Current Liabilities Accrued Liabilities Due to Other Governments Unearned Revenue Notes Payable Accrued Interest Payable Noncurrent Liabilities: Payable within One Year Payable in More Than One Year Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for: Debt Service, Net of Related Debt Capital Projects Grantor Loan Programs Other Trust Donations: Expendable Nonexpendable Health Care: Expendable Nonexpendable Unrestricted Total Net Assets $

Business-Type Activities

Totals 2012 2011

15,255,221 308,232,833 32,364,575 (531,347) 25,779,133 1,932,902 656,274 6,352,097 228,814 37,160,000 168,783,471 298,155,460 523,736,030 1,418,105,463

13,690,243 126,370,200 48,280,298 531,347 2,709,883 15,696,937 11,549,000 1,779,605 9,642,903 11,492,573 47,149,794 43,262 84,101,532 1,365,682,163 1,738,719,740

28,945,464 434,603,033 80,644,873 28,489,016 17,629,839 11,549,000 2,435,879 15,995,000 11,721,387 84,309,794 43,262 168,783,471 382,256,992 1,889,418,193 3,156,825,203

170,971,351 297,199,357 79,347,506 30,079,460 17,812,923 13,070,000 1,832,355 18,907,740 16,959,585 93,125,323 7,614 159,054,244 341,494,800 1,809,370,785 3,049,233,043

23,933,272 6,100,856 408,949 2,722,965 4,565,503 25,117,496 475,077,536 537,926,577

42,283,042 13,585,840 209,767 1,367,145 128,500,000 9,634,328 34,640,775 715,428,737 945,649,634

66,216,314 19,686,696 618,716 4,090,110 128,500,000 14,199,831 59,758,271 1,190,506,273 1,483,576,211

54,468,504 17,881,088 764,765 1,431,953 90,000,000 14,093,377 58,906,731 1,211,794,793 1,449,341,211

405,635,743 10,250,088 144,100,195 19,582,000 12,966,904 1,672,102 160,000 20,802,630 37,000,000 228,009,224 880,178,886

608,119,231 28,416,930 3,031,376 22,211 153,480,358 793,070,106

1,013,754,974 38,667,018 147,131,571 19,582,000 12,989,115 1,672,102 160,000 20,802,630 37,000,000 381,489,582 1,673,248,992

1,009,402,659 37,984,887 129,248,175 19,837,000 22,214,110 1,653,945 160,000 19,077,332 37,000,000 323,313,724 1,599,891,832

The notes to the financial statements are an integral part of this statement.

16

CITY OF LINCOLN, NEBRASKA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED AUGUST 31, 2012 With Summarized Financial Information for the Year Ended August 31, 2011

Expenses Functions/Programs Governmental Activities: General Government Public Safety Streets and Highways Culture and Recreation Economic Opportunity Health and Welfare Mass Transit Equipment Management Engineering Services Interest on Long-Term Debt Total Governmental Activities Business-Type Activities: Parking Lots Golf Parking Facilities Municipal Auditorium Municipal Arena Solid Waste Management Emergency Medical Services Wastewater System Water System Electric System Total Business-Type Activities Total $

Charges for Services

Program Revenues Operating Grants and Contributions

Net (Expense) Revenue and Changes in Net Assets Capital Grants and Contributions Governmental Activities Business-Type Activities Totals 2012 2011

(40,635,824) (82,915,183) (38,319,958) (28,049,044) (16,840,478) (21,414,951) (12,463,592) (1,162,325) (1,900,278) (20,417,899) (264,119,532)

22,686,194 6,150,370 3,489,348 4,473,514 2,346,582 4,773,397 1,652,783 1,476,677 2,103,018 576,337 49,728,220

2,470,510 4,266,129 12,099,851 2,269,016 10,067,225 12,335,789 2,855,065 4,900,277 51,263,862

7,928,577 714,814 18,919,955 4,416,143 11,740 52,457 32,043,686

(7,550,543) (71,783,870) (3,810,804) (16,890,371) (4,426,671) (4,305,765) (7,955,744) 314,352 214,480 (14,888,828) (131,083,764)

(7,550,543) (71,783,870) (3,810,804) (16,890,371) (4,426,671) (4,305,765) (7,955,744) 314,352 214,480 (14,888,828) (131,083,764)

(14,384,375) (70,522,526) (6,955,653) (17,638,543) (1,695,809) (1,902,876) (3,119,327) (251,005) (218,861) (7,171,990) (123,860,965)

(322,612) (3,762,650) (5,611,236) (2,468,566) (18,851) (8,080,971) (4,148,850) (23,017,798) (25,908,587) (250,676,000) (324,016,121) (588,135,653)

453,326 3,314,506 7,348,783 1,762,136 5,652,758 4,870,608 24,040,603 34,021,393 269,043,000 350,507,113 400,235,333

51,263,862

1,722,988 2,143,397 1,791,452 1,074,000 6,731,837 38,775,523

(131,083,764)

130,714 (448,144) 3,460,535 (706,430) (18,851) (2,428,213) 721,758 3,166,202 9,904,258 19,441,000 33,222,829 33,222,829

130,714 (448,144) 3,460,535 (706,430) (18,851) (2,428,213) 721,758 3,166,202 9,904,258 19,441,000 33,222,829 (97,860,935)

49,192 (654,264) 2,259,225 (596,035) (2,935,257) 624,418 877,522 4,295,836 20,287,000 24,207,637 (99,653,328)

General Revenues: Property Tax Motor Vehicle Tax Wheel Tax Sales and Use Tax Sundry and In Lieu Tax Occupation Tax Unrestricted Grants and Contributions Unrestricted Investment Earnings Miscellaneous General Revenues Transfers Total General Revenues and Transfers Change in Net Assets Net Assets - Beginning Net Assets - Ending The notes to the financial statements are an integral part of this statement. $

53,302,884 4,331,331 14,055,801 62,388,551 68,405 25,732,963 93,633 1,014,773 2,623,024 9,254,144 172,865,509 41,781,745 838,397,141 880,178,886

2,048,615 983,824 380,531 (5,060,384) (1,647,414) 31,575,415 761,494,691 793,070,106

53,302,884 4,331,331 14,055,801 62,388,551 68,405 27,781,578 93,633 1,998,597 3,003,555 4,193,760 171,218,095 73,357,160 1,599,891,832 1,673,248,992

48,621,668 4,284,369 12,031,376 57,996,100 63,118 22,462,760 1,927,588 2,935,066 2,653,332 152,975,377 53,322,049 1,546,569,783 1,599,891,832

17

CITY OF LINCOLN, NEBRASKA BALANCE SHEET GOVERNMENTAL FUNDS AUGUST 31, 2012

General Fund ASSETS Cash and Cash Equivalents Investments Receivables, (Net of Allowance for Uncollectibles) Due from Other Funds Due from Other Governments Inventories Prepaid Items Total Assets LIABILITIES AND FUND BALANCES Liabilities: Accounts Payable Contracts Payable Accrued Liabilities Due to Other Funds Due to Other Governments Unearned Revenue Deferred Revenue Total Liabilities Fund Balances: Nonspendable Restricted Committed Assigned Unassigned Total Fund Balances Total Liabilities and Fund Balances

Street Construction Fund

West Haymarket JPA Fund

Other Governmental Funds

Total

2,426,153 32,247,854 6,551,428 1,626,898 11,233,624 379,402 4,454,094 58,919,453

1,442,289 22,685,071 394,466 6,214,964 9,433,341 264,323 172,937 40,607,391

2,282,720 162,443,808 1,591,546 1,044,032 893,503 28,814 168,284,423

7,587,931 103,028,660 23,474,580 2,853,692 3,939,503 485,996 141,370,362

13,739,093 320,405,393 32,012,020 11,739,586 25,499,971 1,129,721 4,655,845 409,181,629

779,047 3,100,074 4,462,887 103,749 1,372,423 9,818,180

2,288,012 192,632 240,195 2,440 6,059,928 8,783,207

17,695,072 165,000 12,987 2,326,408 893,503 21,092,970

1,699,402 749,016 2,052,611 8,343,637 192,102 228,113 2,452,034 15,716,915

22,461,533 749,016 5,510,317 13,059,706 298,291 2,554,521 10,777,888 55,411,272

4,833,496 5,277,054 13,359,297 25,631,426 49,101,273 58,919,453

437,260 18,172,109 13,214,815 31,824,184 40,607,391

28,814 147,162,639 147,191,453 168,284,423

37,645,996 79,013,904 805,612 8,379,749 (191,814) 125,653,447 141,370,362

42,945,566 249,625,706 805,612 34,953,861 25,439,612 353,770,357

Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. Investment in joint venture is not a financial resource and, therefore, is not reported in the funds. Other long-term assets are not available to pay for current-period expenditures and, therefore, are deferred in the funds. Internal service funds are used by management to charge the costs of certain services to individual funds. The assets and liabilities of the internal service funds are included in governmental activities in the statement of net assets. Accrued pension contribution, long-term construction contracts and other liabilities require the use of unavailable financial resources and, therefore, are not reported in the funds. Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported in the funds. Net assets of governmental activities The notes to the financial statements are an integral part of this statement. $ 799,404,404 168,783,471 10,777,888 25,286,923 (4,688,580) (473,155,577) 880,178,886

18

CITY OF LINCOLN, NEBRASKA STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED AUGUST 31, 2012

General Fund REVENUES Taxes: Property Motor Vehicle Wheel Sales and Use Sundry and In Lieu Occupation Special Assessment Intergovernmental Permits and Fees Reimbursement for Services Court Settlements Program Income Investment Earnings Donations Keno Proceeds Miscellaneous Total Revenues EXPENDITURES Current: General Government Public Safety Streets and Highways Culture and Recreation Economic Opportunity Health and Welfare Mass Transit Debt Service Capital Outlay Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Issuance of Debt Issuance of Refunding Debt Premium on Debt Issued Transfer To Bond Refunding Agent Sale of Capital Assets Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ $ 30,845,470 4,331,331 62,388,551 52,614 12,819,569 1,580 3,122,981 5,420,495 6,689,414 1,931,804 154,395 939,159 557,036 129,254,399

Street Construction Fund 92,475 2,911 31,428,745 3,022,847 56,836 (1,056) 1,448,181 36,050,939

West Haymarket JPA Fund 12,913,394 3,900,278 14,225 573,396 6,000,000 23,401,293

Other Governmental Funds 22,697,060 13,963,326 16,231 1,209,477 29,815,656 11,795,689 1,090,257 122,767 4,018,152 2,571,113 3,639,819 2,999,306 93,938,853

Total 53,542,530 4,331,331 14,055,801 62,388,551 68,845 25,732,963 1,213,968 68,267,660 20,239,031 7,850,732 1,931,804 122,767 4,744,887 9,510,272 3,639,819 5,004,523 282,645,484

27,786,449 60,701,737 8,090,630 12,071,114 5,076,683 279,193 52,667 114,058,473 15,195,926 9,545,361 (20,525,981) 3,080,000 42,246 9,885 (7,848,489) 7,347,437 41,753,836 49,101,273

10,379,964 39,768,666 50,148,630 (14,097,691) 15,552,592 (6,113,306) 4,021 9,443,307 (4,654,384) 36,478,568 31,824,184

623,302 14,239,736 87,087,134 101,950,172 (78,548,879) 307,428 307,428 (78,241,451) 225,432,904 147,191,453

10,638,569 9,742,625 473 10,447,418 9,596,988 21,791,426 10,288,935 17,397,428 15,404,915 105,308,777 (11,369,924) 27,954,379 (17,518,037) 3,000,000 36,185,000 4,139,803 (39,840,997) 272,189 14,192,337 2,822,413 122,831,034 125,653,447

39,048,320 70,444,362 18,471,067 22,518,532 14,673,671 22,070,619 10,288,935 31,689,831 142,260,715 371,466,052 (88,820,568) 53,359,760 (44,157,324) 6,080,000 36,185,000 4,182,049 (39,840,997) 286,095 16,094,583 (72,725,985) 426,496,342 353,770,357

The notes to the financial statements are an integral part of this statement.

19

CITY OF LINCOLN, NEBRASKA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED AUGUST 31, 2012

Amounts reported for governmental activities in the statement of activities are different because: Net change in fund balances - total governmental funds Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current period. The net effect of various miscellaneous transactions involving capital contributions is to increase net assets. Revenues in the statement of activites that do not provide current financial resources are not reported as revenues in the funds: change in revenues in fund statements previously recognized in the statement of activities. The issuance of long-term debt (e.g., bonds, leases) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. This amount is the net effect of these differences in the treatment of long-term debt and related items. Some expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds. Changes in the net pension obligation and the net OPEB obligation do not represent financial activity in governmental funds. Changes in the interest in the underlying net assets of the joint venture do not represent financial activity in governmental funds. Internal service funds are used by management to charge the costs of certain services to individual funds. The net expense of the internal service funds is reported within governmental activities. Change in net assets of governmental activities The notes to the financial statements are an integral part of this statement. $ $ (72,725,985)

104,674,946 3,712,226

(5,155,892)

5,996,535

(1,589,757) (1,365,802) 9,729,227

(1,493,753) 41,781,745

20

CITY OF LINCOLN, NEBRASKA GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL (BUDGET BASIS) FOR THE YEAR ENDED AUGUST 31, 2012 Variance with Final Budget Positive (Negative) 2,300,100 2,817,168 4,057 1,550,260 (173,902) 150,587 414,120 156,080 50 68,950 18,427 (44,259) 220,839 7,482,477

Budgeted Amounts Original Final Revenues: Real Estate and Personal Property Tax Taxes Collected by Others Sundry Taxes and In Lieu Occupation Taxes Intergovernmental Permits and Fees Reimbursement for Services Court Fees Court Settlements Recreation Receipts Investment Earnings Donations Rental Income Miscellaneous Total Revenues Expenditures: General Government: Legislative Executive Financial Administration Law Personnel Administration Planning and Zoning Urban Development Miscellaneous Total General Government Public Safety: Police Fire Building and Safety Traffic Engineering Total Public Safety Streets and Highways: Street Maintenance Street Lighting Total Streets and Highways Culture and Recreation: Parks and Recreation Libraries Total Culture and Recreation Economic Opportunity: Lincoln Area Agency on Aging Health and Welfare: Lincoln/Lancaster County Health Debt Service: Issuance and Management Costs Total Expenditures Excess of Revenues Over Expenditures Other Financing Sources (Uses): Transfers In Transfers Out Proceeds from Issuance of Debt Premium on Debt Issued Sale of Capital Assets Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending $ $ 32,446,710 58,655,174 48,949 11,327,520 1,820,820 3,138,633 2,784,337 660,000 1,400,000 2,266,276 141,314 933,210 549,166 384,863 116,556,972 32,446,710 58,655,174 48,949 11,327,520 1,785,820 3,138,633 2,784,337 660,000 1,400,000 2,266,276 141,314 933,210 549,166 384,863 116,521,972

Actual Amounts 34,746,810 61,472,342 53,006 12,877,780 1,611,918 3,289,220 3,198,457 816,080 1,400,050 2,335,226 159,741 933,210 504,907 605,702 124,004,449

282,571 1,265,091 2,625,699 2,562,388 975,193 1,707,273 1,052,198 20,475,922 30,946,335 33,727,986 23,169,360 10,806 1,483,660 58,391,812 2,722,473 3,937,143 6,659,616 11,883,995 321,269 12,205,264 229,064 276,944 108,709,035 7,847,937 9,543,932 (25,242,193) 2,080,000 21,000 (13,597,261) (5,749,324) 22,954,832 17,205,508

282,571 1,263,101 2,636,068 2,577,250 1,030,618 1,709,480 1,055,201 19,833,791 30,388,080 33,923,642 23,471,122 10,806 1,483,660 58,889,230 2,689,455 3,937,143 6,626,598 11,837,363 321,269 12,158,632 229,064 276,944 108,568,548 7,953,424 9,543,932 (25,554,722) 2,080,000 21,000 (13,909,790) (5,956,366) 22,954,832 16,998,466

239,982 1,211,332 2,416,727 2,518,965 1,030,588 1,633,970 869,619 17,933,083 27,854,266 31,979,857 23,423,139 10,806 1,285,507 56,699,309 2,146,295 5,986,090 8,132,385 11,557,323 321,269 11,878,592 229,064 276,944 52,667 105,123,227 18,881,222 9,603,148 (24,419,713) 2,080,000 20,606 9,884 (12,706,075) 6,175,147 22,954,832 29,129,979

42,589 51,769 219,341 58,285 30 75,510 185,582 1,900,708 2,533,814 1,943,785 47,983 198,153 2,189,921 543,160 (2,048,947) (1,505,787) 280,040 280,040 (52,667) 3,445,321 10,927,798 59,216 1,135,009 20,606 (11,116) 1,203,715 12,131,513 12,131,513

The notes to the financial statements are an integral part of this statement.

21

22

CITY OF LINCOLN, NEBRASKA STREET CONSTRUCTION FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL (BUDGET BASIS) FOR THE YEAR ENDED AUGUST 31, 2012 Variance with Final Budget Positive (Negative)

Budgeted Amounts Original Final Revenues: Wheel Tax Special Assessment Intergovernmental Permits and Fees Reimbursement for Services Investment Earnings Miscellaneous Total Revenues Expenditures -- Streets and Highways: Personal Services Materials and Supplies Other Services and Charges Capital Outlay Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Transfers In Transfers Out Sale of Capital Assets Total Other Financing Sources (Uses) Net Change in Fund Balances Amount Budgeted on Project Basis Fund Balances - Beginning Fund Balances - Ending $

Actual Amounts

8,936,537 400,000 50,000 9,386,537

8,936,537 400,000 50,000 9,386,537

199,794 2,093 19,456,863 330,583 9,911 82,037 3,944 20,085,225

199,794 2,093 10,520,326 330,583 (390,089) 32,037 3,944 10,698,688

5,920,183 1,025,791 4,195,530 265,998 11,407,502

5,920,183 1,025,791 4,195,530 265,998 11,407,502

5,799,519 645,845 3,316,068 182,845 9,944,277

120,664 379,946 879,462 83,153 1,463,225

(2,020,965)

(2,020,965)

10,140,948

12,161,913

15,552,592 (6,113,306) 9,439,286 7,418,321 (24,290,239) 33,077,663 16,205,745

15,552,592 (6,113,306) 9,439,286 7,418,321 (24,290,239) 33,077,663 16,205,745

15,552,592 (6,113,306) 4,021 9,443,307 19,584,255 (24,290,239) 33,077,663 28,371,679

4,021 4,021 12,165,934 12,165,934

The notes to the financial statements are an integral part of this statement.

23

CITY OF LINCOLN, NEBRASKA STATEMENT OF NET ASSETS PROPRIETARY FUNDS AUGUST 31, 2012 Business-Type Activities -- Enterprise Funds Lincoln Wastewater System ASSETS Current Assets: Cash and Cash Equivalents Investments Receivables, (Net of Allowance for Uncollectibles) Accrued Interest Receivable Unbilled Revenues Due from Other Funds Due from Other Governments Inventories Plant Operation Assets Prepaid Expenses Total Current Assets Noncurrent Assets: Investments Restricted Assets: Cash and Cash Equivalents Investments Receivables Due from Other Funds Total Restricted Assets Deferred Charges Capital Assets: Land Buildings Improvements Other Than Buildings Machinery and Equipment Utility Plant Construction in Progress Less Accumulated Depreciation Total Capital Assets, Net Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities: Accounts Payable Construction Contracts Accrued Liabilities Accrued Compensated Absences Due to Other Funds Due to Other Governments Unearned Revenue Claims Accrued Interest Commercial Paper Notes Payable Current Portion of Capital Lease Current Portion of Long-Term Debt Other Total Current Liabilities Noncurrent Liabilities: Accrued Compensated Absences Construction Contracts Claims Long-Term Debt, Net Capital Lease Payable Accrued Liabilities Accrued Landfill Closure/Postclosure Care Costs Total Noncurrent Liabilities Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for: Debt Service Capital Projects Other Unrestricted Total Net Assets Lincoln Water System Lincoln Electric System Other Enterprise Funds Governmental Activities -Internal Service Funds

Total

1,097,428 8,389,869 1,996,412 2,459,540 712,049 1,085,874 74,306 15,815,478 7,208,921 7,457,932 7,457,932 707,001 5,996,823 79,839,389 265,147,852 8,793,982 1,767,162 (104,679,735) 256,865,473 272,239,327 288,054,805

968,646 7,237,173 4,159,867 5,038,847 372,746 1,500,956 942,651 20,220,886 7,141,068 7,262,975 7,262,975 539,125 5,449,698 67,727,299 327,271,789 8,616,076 4,400,696 (116,671,087) 296,794,471 311,737,639 331,958,525

9,953,000 85,704,000 22,033,000 234,000 9,791,000 14,468,000 11,549,000 1,776,000 155,508,000 7,502,000 29,887,000 37,389,000 7,989,000 1,267,997,000 52,684,000 (506,423,000) 814,258,000 859,636,000 1,015,144,000

1,671,169 5,186,111 2,567,632 227,717 123,053 211,980 3,605 9,991,267 5,503,058 3,990,573 2,541,887 43,262 148,413 6,724,135 407,777 12,785,779 68,153,381 41,148,424 13,593,699 1,017,374 (54,832,906) 81,865,751 94,500,721 104,491,988

13,690,243 106,517,153 30,756,911 234,000 17,289,387 1,312,512 2,709,883 15,696,937 11,549,000 1,779,605 201,535,631 19,853,047 11,492,573 47,149,794 43,262 148,413 58,834,042 9,642,903 24,232,300 215,720,069 633,568,065 31,003,757 1,267,997,000 59,869,232 (782,606,728) 1,449,783,695 1,538,113,687 1,739,649,318

1,516,128 12,918,786 352,555 1,585,066 279,162 803,181 222,865 17,677,743 12,068,654 228,814 228,814 135,576 1,306,950 6,774,812 465,692 29,574,209 1,366,431 (21,223,444) 18,264,650 30,697,694 48,375,437

211,842 3,333,269 530,841 354,384 666,249 3,487,906 8,584,491 211,522 117,454 84,123,313 162,000 84,614,289 93,198,780

816,353 1,758,562 1,055,782 428,112 109,999 3,360,000 7,528,808 371,425 190,638 58,887,377 235,233 59,684,673 67,213,481

14,102,000 11,651,000 559,000 8,783,000 128,500,000 19,610,000 25,518,000 208,723,000 382,000 528,282,000 528,664,000 737,387,000

1,634,847 348,217 297,116 929,578 209,767 1,367,145 75,080 342,426 1,110,000 6,314,176 76,159 24,570,506 1,943,584 439,526 15,436,000 42,465,775 48,779,951

16,765,042 5,091,831 13,585,840 1,079,612 929,578 209,767 1,367,145 559,000 9,634,328 128,500,000 342,426 27,567,906 25,518,000 231,150,475 659,106 308,092 382,000 695,863,196 1,943,584 836,759 15,436,000 715,428,737 946,579,212

722,723 492,898 789,522 796,293 12,368 168,444 5,170,834 86,600 708,625 8,948,307 717,518 5,132,204 7,990,897 299,588 14,140,207 23,088,514

171,553,512 703,650 364,711 22,234,152 194,856,025

238,567,894 149,097 299,582 25,728,471 264,745,044

140,572,000 27,423,000 109,762,000 277,757,000

57,425,825 141,183 2,367,083 22,211 (4,244,265) 55,712,037

608,119,231 28,416,930 3,031,376 22,211 153,480,358 793,070,106

9,793,942 15,492,981 25,286,923

The notes to the financial statements are an integral part of this statement.

24

CITY OF LINCOLN, NEBRASKA STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS FOR THE YEAR ENDED AUGUST 31, 2012

Business-Type Activities -- Enterprise Funds Lincoln Wastewater System Operating Revenues Charges for Services Fees Parking Revenue Performance Revenue Other Operating Revenue Total Operating Revenues Operating Expenses Personal Services Contractual Services Operation and Maintenance Purchased Power Depreciation Administrative Costs Total Operating Expenses Operating Income (Loss) Nonoperating Revenues (Expenses) Investment Earnings Gain on Disposal of Capital Assets Insurance Recovery Occupation Tax Payments in Lieu of Taxes Amortization of Deferred Charges Interest Expense and Fiscal Charges Total Nonoperating Revenues (Expenses) Income (Loss) Before Contributions and Transfers Capital Contributions Transfers In Transfers Out Change in Net Assets Net Assets - Beginning Net Assets - Ending $ Lincoln Water System Lincoln Electric System Other Enterprise Funds

Total

Governmental Activities -Internal Service Funds

24,097,998 24,097,998

34,150,292 34,150,292

269,043,000 269,043,000

4,870,608 8,385,364 7,800,953 1,704,701 693,268 23,454,894

332,161,898 8,385,364 7,800,953 1,704,701 693,268 350,746,184

54,547,088 54,547,088

10,828,643 7,314,450 1,550,030 19,693,123 4,404,875

13,624,591 7,528,972 2,011,903 23,165,466 10,984,826

19,218,000 119,594,000 41,002,000 33,481,000 213,295,000 55,748,000

8,321,222 4,940,966 6,505,023 3,951,727 23,718,938 (264,044)

8,321,222 4,940,966 50,176,257 119,594,000 59,797,149 37,042,933 279,872,527 70,873,657

14,028,196 39,835,839 2,582,592 56,446,627 (1,899,539)

204,843 135,873 (39,608) (3,285,067) (2,983,959) 1,420,916 2,143,397 3,660 3,567,973 191,288,052 194,856,025

530,761 (76,955) (2,666,166) (2,212,360) 8,772,466 1,791,452 20,605 10,584,523 254,160,521 264,745,044

213,000 (9,384,000) (871,000) (27,126,000) (37,168,000) 18,580,000 1,074,000 (4,012,000) 15,642,000 262,115,000 277,757,000

35,220 24,613 5,587 2,048,615 (18,687) (700,724) 1,394,624 1,130,580 1,722,988 740,596 (1,813,245) 1,780,919 53,931,118 55,712,037

983,824 24,613 141,460 2,048,615 (9,384,000) (1,006,250) (33,777,957) (40,969,695) 29,903,962 6,731,837 764,861 (5,825,245) 31,575,415 761,494,691 793,070,106

104,245 91,279 (228,762) (33,238) (1,932,777) 387,316 103,240 (51,532) (1,493,753) 26,780,676 25,286,923

The notes to the financial statements are an integral part of this statement.

25

CITY OF LINCOLN, NEBRASKA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED AUGUST 31, 2012 Business-Type Activities -- Enterprise Funds Lincoln Wastewater System Cash Flows from Operating Activities Receipts from Customers and Users Receipts from Interfund Services Provided Payments to Suppliers for Goods and Services Payments to Employees Payments for Interfund Services Provided Other Receipts Net Cash Provided (Used) by Operating Activities Cash Flows from Noncapital Financing Activities Occupation Tax Payments in Lieu of Taxes Transfers from Other Funds Transfers to Other Funds Advances from General Fund Repayment of Advances from General Fund Advances to Other Funds Repayments from Other Funds Net Cash Provided (Used) by Noncapital Financing Activities Cash Flows from Capital and Related Financing Activities Additions to Capital Assets Capital Contributions Federal Grant Proceeds Proceeds from Sale of Capital Assets Insurance Recovery Proceeds from Long-Term Debt Cost of Debt Issuance Net Cost of Retiring Plant Principal Payments of Capital Lease Principal Payments of Long-Term Debt Interest and Fiscal Charges Paid Net Cash Used by Capital and Related Financing Activities Cash Flows from Investing Activities Proceeds from Sale and Maturities of Investments Purchases of Investments Interest and Other Receipts Net Cash Provided (Used) by Investing Activities Net Decrease in Cash and Cash Equivalents Cash and Cash Equivalents - Beginning Cash and Cash Equivalents - Ending Reconciliation of Operating Income (Loss) to Net Cash Provided (Used) by Operating Activities Operating Income (Loss) Adjustments to Reconcile Operating Income (Loss) to Net Cash Provided by Operating Activities: Depreciation Changes in Assets and Liabilities: Accounts Receivable and Unbilled Revenues Due from Other Funds Due from Other Governments Inventories Plant Operation Assets Prepaid Expenses Other Assets Accounts Payable Accrued Liabilities Accrued Compensated Absences Due to Other Funds Due to Other Governments Unearned Revenue Claims Deferred Credits and Other Liabilities Accrued Landfill Closure/Postclosure Care Costs Total Adjustments Net Cash Provided by Operating Activities Supplemental Disclosure of Noncash Investing, Capital, and Financing Activities: Contribution of Capital Assets Capital Asset Trade-Ins Purchase of Capital Assets on Account Change in Fair Value of Investments Recognition of Sales Tax Settlement Payment Allowance for Funds in Construcction and Amortization Lincoln Water System Lincoln Electric System Other Enterprise Funds Governmental Activities -Internal Service Funds

Total

24,619,241 274,484 (3,433,598) (6,944,605) (2,029,820) 12,485,702

30,619,833 921,658 (3,761,088) (8,147,810) (3,093,736) 16,538,857

282,476,000 5,501,000 (160,919,000) (25,275,000) (1,710,000) 223,000 100,296,000

22,743,311 184,726 (8,210,940) (8,081,573) (2,251,401) 693,268 5,077,391

360,458,385 6,881,868 (176,324,626) (48,448,988) (9,084,957) 916,268 134,397,950

13,142,517 41,103,030 (37,558,194) (13,914,816) (3,096,972) (324,435)

180,077 180,077

(25,289) (25,289)

(9,388,000) (1,730,000) (11,118,000)

2,124,861 714,089 (1,813,245) 1,745,878 (1,880,656) (7,094) 510,177 1,394,010

2,124,861 (9,388,000) 714,089 (3,543,245) 1,745,878 (1,880,656) (32,383) 690,254 (9,569,202)

103,240 (51,532) 1,423,220 (1,618,266) (709) 516,476 372,429

(10,283,899) 461,134 680,526 135,873 6,203,748 (560,300) (3,137,858) (3,492,563) (9,993,339)

(6,226,515) 1,303,838 1,127,435 (74,312) (5,380,000) (2,898,314) (12,147,868)

(41,761,000) 1,074,000 38,500,000 (243,000) (1,057,000) (18,680,000) (27,583,000) (49,750,000)

(13,336,746) 1,722,988 49,319 5,587 1,534,948 (30,415) (258,306) (1,080,000) (1,240,695) (12,633,320)

(71,608,160) 4,561,960 680,526 49,319 141,460 47,366,131 (908,027) (1,057,000) (258,306) (28,277,858) (35,214,572) (84,524,527)

(4,517,921) 228,909 575,412 (239,512) (214,097) (4,167,209)

28,776,654 (33,070,291) 317,414 (3,976,223) (1,303,783) 2,401,211 1,097,428

20,631,982 (25,752,723) 452,942 (4,667,799) (302,099) 1,270,745 968,646

114,106,000 (167,134,000) 422,000 (52,606,000) (13,178,000) 30,633,000 17,455,000

27,369,645 (22,261,619) 125,816 5,233,842 (928,077) 6,589,819 5,661,742

190,884,281 (248,218,633) 1,318,172 (56,016,180) (15,711,959) 40,894,775 25,182,816

40,188,913 (40,164,442) 248,574 273,045 (3,846,170) 5,591,112 1,744,942

4,404,875

10,984,826

55,748,000

(264,044)

70,873,657

(1,899,539)

7,314,450 795,801 (8,802) (108,059) 80,635 6,802 8,080,827 12,485,702

7,528,972 (2,638,307) (10,018) 366,504 330,999 (24,119) 5,554,031 16,538,857

41,002,000 (897,000) (83,000) 1,521,000 (704,000) 2,753,000 302,000 497,000 157,000 44,548,000 100,296,000

3,951,727 (81,635) (65,077) (118,748) (3,602) 56,380 31,073 208,993 (29,011) 99,638 55,826 431,871 804,000 5,341,435 5,077,391

59,797,149 (2,821,141) (65,077) (118,748) (105,422) 1,521,000 (647,620) 2,753,000 591,518 620,627 (46,328) 99,638 55,826 431,871 497,000 157,000 804,000 63,524,293 134,397,950

2,582,592 (104,974) (165,693) (20,399) 7,205 162,542 (540,022) 133,128 (19,748) 25,066 11,798 (10,473) (485,918) 1,575,104 (324,435)

883,120 3,450,723 77,644 -

487,614 1,949,200 (112,212) -

50,000 22,000 104,000

87,582 619,376 (69,545) -

1,370,734 87,582 6,019,299 (54,113) 22,000 104,000

387,316 324,819 (113,463) -

The notes to the financial statements are an integral part of this statement.

26

CITY OF LINCOLN, NEBRASKA STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS AUGUST 31, 2012 Police & Fire Pension Trust Fund ASSETS Cash and Cash Equivalents Investments: Pooled Investment Funds Collateralized Investment Agreement Corporate Bonds Mutual Funds Private Equity Real Estate Limited Partnerships Total Investments Receivables: Contributions Accrued Interest Other Due from Other Governments Contractor Retainage Total Assets LIABILITIES Warrants Payable Accounts Payable Accrued Liabilities Accrued Compensated Absences Due to Other Governments Due to Homeowners Due to Contractors Due to Joint Venture Due to Plan Members Due to Bondholders Total Liabilities NET ASSETS Held in Trust for Pension Benefits and Other Purposes 16,000 7,456 14,729 38,185 1,110,868 248,292 3,765,444 17,641 1,249,837 206,548 60,701 117,926 6,777,257 $ 1,465,894 4,198,097 805,800 147,725,024 561,029 13,095,044 166,384,994 570,438 527,397 432 168,949,155 4,011,529 1,910,000 1,910,000 38,128 44,274 2,664 770,662 6,777,257

Agency Funds

168,910,970

The notes to the financial statements are an integral part of this statement.

27

CITY OF LINCOLN, NEBRASKA STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUND FOR THE YEAR ENDED AUGUST 31, 2012

Police & Fire Pension Trust Fund Additions: Contributions: Employer Employee Total Contributions Investment Earnings: Interest Dividends Net Increase in Fair Value of Investments Net Investment Earnings Total Additions Deductions: Benefit Payments Refunds of Contributions Administrative Costs Total Deductions Change in Net Assets Net Assets Held in Trust for Pension Benefits and Other Purposes - Beginning Net Assets Held in Trust for Pension Benefits and Other Purposes - Ending

5,837,676 2,418,690 8,256,366

219,271 2,872,884 5,686,090 8,778,245 17,034,611

10,923,121 645,182 369,764 11,938,067 5,096,544

163,814,426

168,910,970

The notes to the financial statements are an integral part of this statement.

28

NOTES TO THE FINANCIAL STATEMENTS

29

CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012

(1)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REPORTING ENTITY The accompanying financial statements present the government of the City of Lincoln, Nebraska (City) and its blended component unit, the West Haymarket Joint Public Agency (WHJPA), established April 2, 2010, for which the City is considered to be financially accountable. Regarding related organizations, the Citys Mayor appoints and the City Council approves all of the board appointments of the Housing Authority of the City of Lincoln. However, the City has no further accountability for this organization. Blended component units, although legally separate entities, are, in substance, part of the governments operations. The participants in the WHJPA are the City and University of Nebraska (UNL), and the agency is governed by a board consisting of the Mayor, a member of the UNL Board of Regents, and a member of the City Council. The purpose of the agency is to make the most efficient use of the taxing authority and other powers of the participants to facilitate the redevelopment of the West Haymarket Redevelopment Area. The WHJPA is reported as a major governmental fund in the Citys financial statements. Complete separate financial statements for the WHJPA may be obtained at the City of Lincoln Finance Department, 555 South 10th Street, Suite 103, Lincoln, NE 68508. FISCAL YEAR-END All funds of the City, with the exception of Lincoln Electric System (LES), are reported as of and for the year ended August 31, 2012. December 31st is the fiscal year-end of LES as established by the City Charter, and the last separate financial statements were as of and for the year ended December 31, 2011. The amounts included in the City's 2012 financial statements for LES are amounts as of and for the year ended December 31, 2011. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS The government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the non-fiduciary activities of the primary government and its component unit. Fiduciary activities, whose resources are not available to finance the Citys programs, are excluded from the government-wide statements. The material effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Functional expenses may also include an element of indirect cost, designed to recover administrative (overhead) costs. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. 30

CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012

MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION The government-wide financial statements are reported using the total economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and trust fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements have been met. Agency funds, reporting only assets and liabilities, have no measurement focus but use the accrual basis of accounting. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized when they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, including interest on long-term debt, as well as expenditures related to compensated absences and claims and judgments are recorded only when payment is due. Property taxes, sales taxes, highway user fees, interdepartmental charges, and intergovernmental revenues are all considered to be susceptible to accrual. Special assessments are recorded as revenues in the year the assessments become current. Annual installments not yet due are reflected as special assessment receivables and deferred revenues. Other revenue items are considered to be measurable and available only when cash is received by the City. The City reports the following major governmental funds: The General Fund finances the day-to-day operation of the basic governmental activities, such as legislative, judicial, administration, aging services, police and fire protection, emergency communications, legal services, planning, and parks and recreation. Primary resources of the fund include property, sales, and occupation taxes. The Street Construction Fund, a special revenue fund, accounts for the resources accumulated, primarily highway allocation fees received from the State of Nebraska, and the payments made for the maintenance, construction, and improvement of the streets and highways in the City. The West Haymarket JPA Fund accounts for the activities of the joint public agency, a blended component unit of the City, established to facilitate the redevelopment of the West Haymarket Area. Occupation taxes imposed on bar, restaurant, car rental, and hotel revenues provides the resources to finance the activities of the JPA. The City reports the following major enterprise funds: The Lincoln Wastewater System Fund accounts for the activities of the Citys wastewater utility. The Lincoln Water System Fund accounts for the activities of the Citys water distribution operations. The Lincoln Electric System Fund accounts for the activities of the Citys electric distribution operations. Additionally, the City reports the following fund types: Internal Service Funds account for data processing, engineering, risk management, fleet management, municipal services center operations, telecommunications, and copy services 31

CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012 provided to other departments or agencies of the government, or to other governments, on a cost reimbursement basis. The Pension Trust Fund accounts for the receipt, investment, and distribution of retirement contributions made for the benefit of police officers and firefighters. The Agency Funds account for the collection of various taxes, fines, and fees due to other government entities; funds held in escrow for homeowners; good faith money due to contractors upon project completion; funds held for payroll taxes and other payroll related payables: funds held to pay outstanding warrants; funds to pay phone system charges; funds to pay matured bonds and coupons for which the City Treasurer is trustee; funds for the joint administrative entity known as JAVA, created to coordinate planning and implementation of the Antelope Valley Project; funds deposited by Gateway Shopping Center in fulfillment of a condition of the use permit for expansion; funds for shared library services; and reserve funds held for the Public Building Commission Bonds. Private-sector standards of accounting and financial reporting issued prior to November 30, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict pronouncements of the Governmental Accounting Standards Board. Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. Only the Citys Lincoln Wastewater System and Lincoln Water System funds have elected to follow subsequent private-sector guidance. The effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are payments-in-lieu of taxes, return on equity, and charges between the business-type functions and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, fines and forfeitures, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary funds principal ongoing operations. The principal operating revenues of the enterprise funds and of the governments internal service funds are charges to customers for goods and services. Operating expenses include the cost of sales and service, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, it is generally the Citys policy to use restricted resources first, then unrestricted resources as they are needed. In 2011, the City Council approved an ordinance requiring LES to pay an annual dividend to the City for the Citys ownership of LES, in an amount based on the total net assets of LES as of the most recent audited year-end financial statements. The annual dividend shall be remitted to the City on a semiannual basis on the 20th day of February and August of each year, with each payment representing fifty percent of the annual dividend payment.

32

CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012 ASSETS, LIABILITIES, AND NET ASSETS OR FUND EQUITY Deposits and Investments The Citys cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. These investments are not specifically identified with any one fund. Interest is allocated to the individual funds on the basis of average cash balances. The City may invest in certificates of deposit, in time deposits, and in any securities in which the state investment officer is authorized to invest pursuant to the Nebraska Capital Expansion Act and the Nebraska State Funds Investment Act and as provided in the authorized investment guidelines of the Nebraska Investment Council in effect on the date the investment is made. Investments in the Pension Trust Fund are carried at fair value. Investments in other funds are carried at fair value, except for short-term investments, which are reported at amortized cost, which approximates fair value. Securities traded on a national exchange are valued at the last reported sales price. Investments that do not have an established market are reported at estimated fair value, based on relevant market information of similar financial instruments. Income from investments held by the individual funds is recorded in the respective funds as it is earned. Receivables and Payables Loans receivable in governmental funds consist of rehabilitation and redevelopment loans that are generally not expected or scheduled to be collected in the subsequent year. Noncurrent portions of long-term receivables due to governmental funds are reported on their balance sheets, in spite of their spending measurement focus. Recognition of governmental fund type revenues represented by noncurrent receivables generally is deferred until they become current receivables. Because of their spending measurement focus, expenditure recognition for governmental fund types excludes amounts represented by noncurrent liabilities. Since they do not affect current assets, such long-term amounts are not recognized as governmental fund type expenditures or fund liabilities. Inventories and Prepaid Items Materials, supplies, and fuel inventories are stated at cost, which is generally determined using the average cost method. Inventories of governmental funds are recorded as expenditures when consumed rather than when purchased. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. Amounts of governmental fund inventories and vendor prepaid items are reported as nonspendable net assets to indicate that they do not represent available spendable resources. Certain payments that have been made which benefit future accounting periods and are funded by interfund borrowings, are also recorded as prepayments, with a like amount of interfund liability reflected. These prepayments are charged to expenditures on the governmental fund financial statements over the period of their related borrowings. On the government-wide financial statements these prepayments have been capitalized and are charged to expenditures as the assets are depreciated over their useful lives. Deferred Charges LES share of payments made for the construction of the Dry Fork Coal Mine are included in deferred charges on the statement of net assets. The mine is expected to provide fuel for Laramie River Station over the estimated 25-year life of the mine. The advances will be returned to LES over the estimated life of the mine. In addition, costs related to certain capital improvements at Sheldon Station have been deferred under accounting pronouncements applicable to regulated utilities. 33

CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012

Investment in Joint Venture Investment in joint venture consists of the Citys interest in the Joint Antelope Valley Authority (see Note 23), a joint administrative entity reported in the Citys financial statements using the equity method of accounting. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, drainage systems, street lights, and similar items), are reported in the applicable governmental or businesstype activities columns in the government-wide financial statements. Capital assets are defined by the City as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the assets or materially extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalization value of the assets constructed. Capital assets are depreciated using the straight-line method over the following estimated useful lives: Assets Buildings Improvements Infrastructure Equipment Utility Plant Years 10 - 50 5 - 40 20 - 100 2 - 20 30 - 40

The exception to this rule is library media, which is depreciated using a composite depreciation method. Compensated Absences City employees generally earn vacation days at a variable rate based on years of service. In the event of termination, an employee is reimbursed for accumulated vacation time up to a maximum allowed accumulation, which is in no case longer than 37 days. Employees earn sick leave at the rate of one day per month with total accumulation limits established by the employees' bargaining unit. Upon retirement, an employee is reimbursed for accumulated sick leave with maximums depending on the employees bargaining unit contract. Upon resignation from City service an employee may also be compensated for a percentage of accumulated sick leave, again, based on the employees bargaining union contract. In some cases payment may be placed in a medical spending account rather than reimbursing the employee directly. LES is covered by a separate personnel plan regarding vacation and sick leave with the liability for these benefits recorded in accrued liabilities. Vacation leave and other compensated absences with similar characteristics are accrued as the benefits are earned if the leave is attributable to past service and it is probable that the City will compensate the employees for such benefits. Sick leave and other compensated absences with similar characteristics are accrued as the benefits are earned only to the extent it is probable that the City will compensate the employees for such benefits through cash payments conditioned on the employee's termination or retirement, and is recorded based on the termination method. Such accruals are based on current salary rates and include salary-related payments directly and incrementally associated with payments made for compensated absences on termination. 34

CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012 All vacation and sick leave is accrued when incurred in the government-wide, proprietary, and fiduciary fund financial statements. In the governmental funds, only compensated absences that have matured as of year-end, for example, as a result of employee resignations and retirements, are recorded as a fund liability. Long-Term Obligations In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt using the bonds-outstanding method. For current and advance refundings of debt, the difference between the reacquisition price and the net carrying amount of the old debt is deferred and amortized as a component of interest expense over the remaining life of the old debt or the life of the new debt, whichever is shorter. In the fund financial statements, governmental funds recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as an other financing source. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as current expenditures. Fund Equity Fund balances reflect assets minus liabilities in the governmental fund statements. Fund balance is divided into five classifications; nonspendable, restricted, committed, assigned and unassigned. Fund balance is reported as nonspendable when not in spendable form or legally or contractually required to be maintained intact. Fund balance is reported as restricted when constraints placed on the use are either externally imposed by creditors, grantors, contributors, or laws or regulations other governments; or imposed by law through constitutional provisions or enabling legislation. Fund balance is reported as committed when constraints are imposed by formal action (ordinance) of the City Council, the Citys highest level of decision-making authority. Fund balance is reported as assigned when the intent of the City (resolution, executive order) is to use the funds for a specific purpose. Unassigned fund balance is the residual amount and may only be reported in the General Fund. The City has established a policy providing for an unreserved fund balance in the Citys General Fund. To meet excess cash flow needs, no less than twenty percent of the ensuing years General Fund budget is to be set aside as an unrestricted reserve. Currently $26,393,981 of the General Funds spendable and unrestricted fund balance meets the requirements of this policy. Net Assets Classification Net assets are assets minus liabilities and are shown in the entity-wide, proprietary, and fiduciary fund financial statements. Net assets are required to be classified into three components invested in capital assets, net of related debt; restricted; and unrestricted. These classifications are defined as follows: Invested in capital assets, net of related debt This component of net assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvements of those assets. If there are significant unspent related debt proceeds at year-end, the portion of the debt attributable to the unspent proceeds is not included in the calculation of invested in capital assets, net of related debt. Restricted This component of net assets consists of restrictions placed on net assets use through external constraints imposed by creditors (such as debt covenants), grantors, contributors, or law or regulations of other governments, or constraints imposed by law through constitutional provisions or enabling legislation.

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CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012 The government-wide statement of net assets reports $278,004,436 of restricted net assets, of which enabling legislation restricts $16,863,650. Unrestricted This component consists of net assets that do not meet the definition of restricted or invested in capital assets, net of related debt. BUDGETARY DATA The City Council follows these procedures, set out in the City Charter, in establishing the budgetary data reflected in the financial statements: 1) At least 40 days prior to the end of the budget and fiscal year, the Mayor submits to the City Council a proposed annual budget for the ensuing year. The annual budget is a complete financial plan for the ensuing budget year and consists of an operating budget and a capital budget. 2) Public hearing on the proposed budget is scheduled for not later than 10 days prior to the budget adoption date. 3) Not later than 5 days prior to the end of the fiscal year, the budget is legally adopted by resolution of the City Council. 4) The Mayor is authorized to transfer unencumbered balances between appropriations of the same department or agency. The Mayor also has authority to lower appropriations in any fund where actual revenues are less than appropriated in order to avoid incurring a budget deficit for the year. Appropriation transfers between departments or agencies may only be authorized by resolution of the City Council. The Council may not make any appropriations in addition to those authorized in the annual budget, except that it may authorize emergency appropriations in the event of an emergency threatening serious loss of life, health, or property in the community. 5) Budgets for all funds are adopted on a basis inconsistent with accounting principles generally accepted in the United States of America (GAAP). Since encumbrances are included in the City's budget accounting, year-end encumbrances are reappropriated to the next year in the budget process. Various funds have expenditures automatically appropriated through the budget resolution, based on funds available. These expenditures are reflected in the original and final budgets at amounts equal to the actual expenditures. Budget basis expenditures are presented on a cash basis. Amendments to the adopted budget were made this year and resulted from prior fiscal year encumbrances identified subsequent to budget adoption, appropriation of unanticipated revenues to certain funds as provided in the budget resolution, and appropriation revisions between or among departments as provided for under the City Charter. 6) Appropriation controls are required at the departmental level. However, as a matter of policy and practice, appropriations generally are controlled at the next level of organization (division) or by fund within a department. 7) Operating appropriations lapse at the end of the fiscal year except for those reappropriated by Council resolution, capital improvement appropriations and year-end encumbrances against operating budgets. Capital improvement appropriations are continuing appropriations through completion of the project. 8) Budgets are adopted by resolution for the following fund types: general, special revenue, debt service, capital projects, permanent, enterprise, internal service, and pension trust. Legally adopted annual budgets are not established for the West Haymarket JPA component unit, certain special revenue (Advance Acquisition, Police & Fire Pension Contributions, Special Assessment, Impact Fees, Parks & Recreation Special Projects, Seniors Foundation of Lincoln & Lancaster County, and R.P. Crawford Park), permanent (J.J. Hompes), Fast Forward, and agency funds. In addition, capital project funds are budgeted on a project rather than an annual basis.

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CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012 The City began utilizing a biennial budget process for the fiscal year beginning September 1, 2012. The biennial budget will be a complete financial plan for the biennial period and will consist of an operating budget and a capital budget. ENDOWMENTS The Community Health Permanent Endowment Fund was established in 1997 with the $37,000,000 cash proceeds realized by the City from the sale of Lincoln General Hospital, and may be increased by donations, bequests, or appropriations to the fund. Investment earnings of the fund are used for funding health and health-related programs that further the health, safety, or welfare of the citizens of Lincoln. Earnings deposited with the City Treasurer shall be paid out only by order of those persons designated by the Community Health Endowment (CHE) Board of Trustees as outlined in the Fiscal and Budget Directives policy between the CHE and the City. State law directs that, subject to the intent of a donor expressed in the gift instrument, an institution may appropriate for expenditure or accumulate so much of an endowment fund as the institution determines is prudent for the uses, benefits, purposes, and duration for which the endowment fund is established. The current amount of net appreciation available for expenditure is $19,937,630, which is reported as expendable health care restricted net assets in the statement of net assets. The initial endowment principal is reported as nonexpendable health care restricted net assets in the statement of net assets. PRIOR-YEAR SUMMARIZED FINANCIAL INFORMATION The basic financial statements include certain prior-year summarized comparative information in total but not at the level of detail required for a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the Citys basic financial statements as of and for the year ended August 31, 2011, from which the summarized information was derived. Also, certain amounts presented in the prior year data have been reclassified in order to be consistent with the current years presentation. ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses/expenditures during the reporting period. Actual results could differ materially from those estimates. IMPLEMENTATION OF NEW ACCOUNTING PRINCIPLES In 2012, the City implemented the provisions of GASB Statement No. 64, Derivative Instruments: Application of Hedge Accounting Termination Provisions, which clarifies the circumstances in which hedge accounting should continue when a swap counterparty, or a swap counterpartys credit support provider, is replaced. The implementation of GASB 64 did not have a material impact on the financial statements. (2) RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS EXPLANATION OF CERTAIN DIFFERENCES BETWEEN THE GOVERNMENTAL FUNDS BALANCE SHEET AND THE GOVERNMENT-WIDE STATEMENT OF NET ASSETS The governmental funds balance sheet includes a reconciliation between fund balance total governmental funds and net assets of governmental activities as reported in the government-wide statement of net assets. One element of that reconciliation explains, Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported in the funds. The details of the $473,155,577 difference are as follows:

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CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012

EXPLANATION OF CERTAIN DIFFERENCES BETWEEN THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES AND THE GOVERNMENT-WIDE STATEMENT OF ACTIVITIES The governmental funds statement of revenues, expenditures, and changes in fund balances includes a reconciliation between net change in fund balances total governmental funds and change in net assets of governmental activities as reported in the government-wide statement of activities. One element of that reconciliation explains, Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. The details of this $104,674,946 difference are as follows:

Another element of that reconciliation states, The issuance of long-term debt (e.g. bonds, leases) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. The details of this $5,996,535 difference are as follows:

Another element of that reconciliation states, Some expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds. The details of this $(1,589,757) difference are as follows:

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CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012

(3)

RESTRICTED ASSETS Certain proceeds of the enterprise funds revenue bonds and resources set aside for their repayment are classified as restricted assets on the statement of net assets because their use is limited by applicable bond covenants. Assets included in the Bond Principal and Interest Account and the Bond Reserve Account are restricted for the payment of bond principal and interest. Assets included in the Surplus Account and the Depreciation and Replacement Account are restricted for purposes including improvements, repairs and replacements, acquisition of equipment, and the payment of bond principal and interest. Assets included in the Construction Account are restricted for paying the cost of capital improvements. Lincoln Electric System has also restricted certain assets for employee health claims. Certain assets of the Pershing Municipal Auditorium Enterprise Fund are classified as restricted assets to be used for marketing and improvements. Certain assets of the Fleet Services Internal Service Fund are restricted for purchase of capital equipment. A recap of restrictions and related balances at August 31, 2012, are as follows:

Restricted assets for internal balances are shown on the fund statements and included above, but are segregated and not included in restricted asset balances on the statement of net assets. Resources of the permanent funds totaling $37,160,000 are legally restricted to the extent that only earnings and not principal may be used to support the Citys programs. (4) DEPOSITS AND INVESTMENTS DEPOSITS Custodial credit risk is the risk that in the event of a bank failure, a governments deposits may not be returned to it. The Citys deposit policy for custodial credit risk requires compliance with the provisions of state law. State Statutes 15-846 and 15-847 R.R.S., 1943 require banks either to provide a bond or to pledge government securities (types of which are specifically identified in the Statutes) to the City Treasurer in the amount of the City's deposits. The Statutes allow pledged securities to be reduced by the amount of the deposit insured by the Federal Deposit Insurance Corporation (FDIC).

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CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012 One or more of the financial institutions holding the Citys cash accounts are participating in the FDIC Transaction Account Guarantee Program. Under the program, through December 31, 2012, all noninterest-bearing transaction accounts at these institutions are fully guaranteed by the FDIC for the entire amount in the account. Beginning January 1, 2013, noninterest-bearing transaction accounts are subject to the $250,000 limit on FDIC insurance per covered institution. For interest-bearing cash accounts, the Citys cash deposits, including certificates of deposit, are insured up to $250,000 by the FDIC. Any cash deposits or certificates of deposit in excess of the $250,000 FDIC limits are covered by collateral held in a Federal Reserve pledge account or by an agent for the City and thus no custodial risk exists. INVESTMENTS At August 31, 2012, the City had the following investments, maturities and credit ratings:

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CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012 INVESTMENT POLICIES General City Policy Generally, the Citys investing activities are managed under the custody of the City Treasurer. Investing is performed in accordance with the investment policy adopted by the City Council complying with state statutes and the City Charter. The City may legally invest in U.S. government securities and agencies, U.S. government sponsored agencies, and in bank repurchase agreements. It may also invest to a limited extent in corporate bonds, bankers acceptances, and investment agreements. Custodial Credit Risk. For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the City will not be able to recover the value of its investment securities that are in the possession of an outside party. Interest Rate Risk. As a means of limiting its exposure to fair value losses arising from rising interest rates, the Citys investment policy limits current operating funds to be invested with maturities of not longer than twenty-four months. Fixed income investments held in construction funds, operating funds, and other nonoperating funds are limited to ten-year maturities. Investment agreements are not subject to interest rate risk, as the issuer guarantees the interest rate. Money market mutual funds and external investment funds are presented as investments with a maturity of less than one year because they are redeemable in full immediately. Tax Increment Financing investments are allowed to exceed 10 years as the interest rates are guaranteed by the fund and the investment is made within the Citys funds. Credit Risk. Credit Risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The Citys investment policy establishes requirements for certain investment securities to be rated at certain rates or higher without having collateral pledged to the City. The following investment types must be rated at the minimum rates noted below: S&P AA AAAAMoodys Aa Aa3 Aa3

Money Markets Corporate Notes Investment Agreements

Investment agreements are made with provisions that if the provider is downgraded below Aa3 by Moodys Investors Service (Moodys) or AA- by Standard & Poors (S&P), the provider must deliver collateral of U.S. Government agencies obligations at a margin of 102-104%, and if the provider is further downgraded below A3 by Moodys or A- by S&P, the City will have the right to terminate the agreement and receive all invested amounts plus accrued but unpaid interest without penalty. As of August 31, 2012, the investment agreements were adequately collateralized with U.S. Government agencies obligations that had a rating of Aaa by Moodys and AA+ by S&P, or by small business administration obligations which are 100% guaranteed by the U.S. Government. The external investment funds are held in the Citys idle fund pool and are comprised of Nebraska Public Agency Investment Trust (NPAIT) and Short-Term Federal Investment Trust (STFIT). NPAIT and STFIT invest in only the highest quality securities, including U.S. government, rated U.S. sponsored agencies, and guaranteed student loans.

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CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012 Concentration of Credit Risk. The Citys investment policy places various limits on the amount that may be invested in any one issuer. Per the policy, allocation limits do not apply to the investment of proceeds from issuance of debt. These investments shall be governed by the debt covenant included in the debt instrument. Non-compliance due to a decrease in investment balance does not require corrective action.

Community Health Endowment (CHE) Policy As a public endowment fund, under State law, CHE is permitted to invest in the manner required of a prudent investor acting with care, skill and diligence under the prevailing circumstance, without restrictions as to the type and limits of investments. Custodial Credit Risk. For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, CHE will not be able to recover the value of its investment securities that are in the possession of an outside party. Interest Rate Risk. As a means of limiting its exposure to fair value losses arising from rising interest rates, CHEs investment policy requires the average duration of the fixed income portfolio to be no more than 120% of the appropriate fixed income benchmark. Mutual and institutional funds are presented as an investment with a maturity of less than one year because they are redeemable in full immediately. Credit Risk. Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. It is CHEs policy to limit its investments in fixed income securities to issues with at least BBB-/Baa3 ratings. Short-term fixed income issues should have a minimum A-2/P-2 rating. Concentration of Credit Risk. CHE limits the percentage of cost that may be invested in any one industry, company and issuer. CHEs portfolio shall not own more than 5% of the outstanding securities of any single issuer. Exceptions are allowed where a funds benchmark includes securities greater than 3%, in which case the investment manager may have no more than the securities index weight plus 2%. The entire portfolio shall have no more than 5% of its assets invested in the securities of any one issuer, with the exception of U.S. Treasury and U.S. agencies obligations. Foreign Currency Risk. This risk relates to adverse affects on the fair value of an investment from changes in exchange rates. CHE had no investment denominated in foreign currency at August 31, 2012. Police & Fire Pension Trust Policy The Police & Fire Pension Trust Investment Board, established by the City Council in accordance with the Lincoln Municipal Code chapter 4.62, directs and oversees the trusts investments for the sole benefit of plan participants and beneficiaries. The board also provides oversight and directions to the plan administrator with regard to the investments of the trusts funds. The daily management responsibility of the trust and routine investment transactions are delegated to the plan administrator. The Police & Fire Pension Trust is allowed to invest in domestic and international equity funds, domestic and foreign bonds, real estate, mortgage-backed securities, and other alternative investments.

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CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012 Custodial Credit Risk. For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, Police & Fire Pension Trust will not be able to recover the value of its investment securities that are in the possession of an outside party. Interest Rate Risk. The Investment Board for the Police & Fire Pension Trust compares the risk and return characteristics derived from the actual performance of the Fund, separate asset classes and specific securities to appropriate benchmarks, financial indices and/or funds at least annually. Asset allocation, investments, and/or investment managers are adjusted as necessary by this monitoring. Credit Risk. The policy states that the plan will select appropriate investments, or investment manager(s), to fill each asset class allocation. The individual investment, or investment managers, chosen shall be those determined to meet the boards objectives in terms of their overall combination of risk, return, and liquidity. Concentration of Credit Risk. It is the desire of the board that no more than 5% of assets may be from a single corporate or sovereign issuer exclusive of the U.S. government. The board reviews assets to monitor the concentration of overlapping securities held by multiple mutual funds. Summary of Deposit and Investment Balances Following is a reconciliation of the Citys deposit and investment balances as of August 31, 2012:

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CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012 (5) FUND BALANCES Fund balances are classified as nonspendable, restricted, committed, assigned or unassigned. The City generally follows this same order in spending available resources unless special circumstances apply. The following provides details of the aggregate amounts displayed on the face of the balance sheet:

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CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012

(6)

RECEIVABLES AND DUE FROM OTHER GOVERNMENTS Receivables at August 31, 2012, consist of the following (in thousands):

Enterprise funds customer accounts receivable include unbilled charges for services. Delinquent special assessment receivables at August 31, 2012, were $183,023. The total of Due From Other Governments of $28,489,016 includes the following significant items:
Fund/Fund Type General/Major Governmental Amount $ 10,585,925 411,724 80,421 58,575 75,616 3,474,512 61,163 5,896,631 812,558 80,945 967,257 118,617 1,500,956 345,909 10,815 1,772,059 273,492 166,667 1,369,403 116,534 226,338 11,830 14,853 28,432,800 56,216 $ 28,489,016 Service State of Nebraska, July/August Sales and Use Tax August Motor Vehicle Taxes Collected by Lancaster County Federal Government, Cost Reimbursements State of Nebraska, Cost Reimbursements Lancaster County, Cost Reimbursements State of Nebraska, July/August Highway User Fees Railroad Transportation Safety District, Cost Reimbursements Federal Government, Cost Reimbursements Federal Government, Cost Reimbursements State of Nebraska, Cost Reimbursements State of Nebraska, Cost Reimbursements Federal Government, Cost Reimbursements State of Nebraska, Cost Reimbursements Lancaster County, Cost Reimbursements Federal Government, Cost Reimbursements Federal Government, Cost Reimbursements State of Nebraska, Cost Reimbursements State of Nebraska, July/August Development Fund Disbursements August Motor Vehicle Taxes Collected by Lancaster County State of Nebraska, Cost Reimbursements Lancaster County Billings Lancaster County Billings Lancaster County Billings

Street Construction/Major Governmental

West Haymarket JPA/Major Governmental Wastewater/Major Enterprise Water/Major Enterprise Lincoln/Lancaster Co. Health/Special Revenue StarTran/Special Revenue Federal Grants/Special Revenue Antelope Valley/Tax Supported Bonds/Debt Service Vehicle Tax/Capital Projects Parking Lot Revolving/Enterprise Information Services/Internal Service Insurance Revolving/Internal Service Copy Services/Internal Service Subtotal All other Total Due From Other Governments

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CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012

(7)

CAPITAL ASSETS Capital asset activity for the year ended August 31, 2012, was as follows:

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CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012

Depreciation expense was charged to functions/programs as follows:

Capital asset activity of each major enterprise fund was as follows:

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CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012

Interest incurred during the construction phase of capital assets of business-type activities is added to the cost of the underlying assets constructed and is amortized over the useful lives of the assets. During 2012, capitalized interest activity was as follows:

Lincoln Electric System utility plant includes an allowance for funds used during construction for projects costing in excess of $500,000 with a budgeted construction period in excess of 12 months. The allowance for funds used during construction consists of the project balance times the weighted-average interest rate on debt based on Federal Energy Regulatory Commission accounting method. The weighted-average rate for 2011 was 4.6%.

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CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012 (8) INTERFUND BALANCES AND ACTIVITY Balances Due To/From Other Funds at August 31, 2012, consist of the following:

Due to and Due from balances are recorded when funds overdraw their share of pooled cash. Other balances result from the time lag between the dates that (1) interfund goods and services are provided or reimbursable expenditures occur, (2) transactions are recorded in the accounting system, and (3) payments between funds are made. During 2005 the Citys General Fund purchased the street light system from LES at an amount equal to the net book value of the street light system at the transaction date. The purchase was financed through an interfund borrowing. On the government-wide statements, the purchase was accounted for as a purchase of capital assets of governmental activities and a sale of capital assets of business-type activities. On the governmental fund statements, the General Fund recognized a liability in due to other funds and a prepayment for the funds borrowed from the Citys other funds. Each fund has recorded a receivable for the pro-rata share of the borrowed funds. The General Fund will pay back the amount borrowed plus interest in scheduled monthly installments over a period of 126 months. As payments are made, the General Fund will reduce the liability, the related prepayment, and recognize streets and highways expenditures. Transfers To/From Other Funds for the year ended August 31, 2012, consist of the following:

Transfers are used to (1) move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them, (2) use unrestricted revenues in the General Fund to finance various programs accounted for in other funds in accordance with budgetary authorizations, and (3) transfer payment in lieu of taxes and return on equity from LES to the General Fund. The $4,193,760 variance for transfers on the Statement of Activities is caused by the different fiscal year end dates used by the City (August 31) and Lincoln Electric System (December 31). Lincoln Electric System records an estimate for payments of return on equity as an accrued liability at December 31. The City however, receives the payments before the August 31 fiscal year end, and records the total amount as a transfer in. 49

CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012

(9)

DEBT OBLIGATIONS SHORT-TERM Established by City Ordinance, LES may borrow up to $150 million under a commercial paper note program. At December 31, 2011, LES had $128.5 million of tax-exempt commercial paper notes outstanding. The notes mature at various dates but not more than 270 days after the date of issuance. The weighted-average interest rate for the year ended December 31, 2011, was 0.20 percent. The outstanding commercial paper notes are secured by a revolving credit agreement, which provides for borrowings up to $150 million. LES pays a commitment fee for the credit agreement. Under the terms of the agreement, LES can either settle or refinance the commercial paper upon maturity. LES uses commercial paper notes as part of their long-term financing strategy. As such, commercial paper is typically renewed as it matures. The weighted average length of maturity of commercial paper for 2011 was 42 days. Commercial paper activity for the year ended December 31, 2011, is as follows:

LONG-TERM The City issues general obligation, special assessment, and revenue bonds to finance the acquisition and construction of major capital assets. Bonded indebtedness has also been entered into to advance refund several general obligation and revenue bonds. General obligation bonds are direct obligations and pledge the full faith and credit of the government. Special assessment bonds are repaid from amounts levied against affected property owners, but in the unlikely event collections are not sufficient to make debt payments, the responsibility rests with the City to meet that obligation. For revenue bonds the government pledges income derived from the acquired or constructed assets to pay the debt service. Net assets of $4,447,455, $2,847,674, $10,305,977, and $363,083 are currently available in the debt service funds to service the General Obligation Bonds, Tax Supported Bonds, Tax Allocation Bonds, and Special Assessment Bonds, respectively. Revenue Bonds are funded partially from reserve accounts set up for debt repayment and partially from proceeds of daily operations. The City has entered into lease agreements for financing the acquisition of land, buildings, street lights, emergency ambulances and defibrillators, fire engines, golf equipment, and computer equipment and software. These lease agreements qualify as capital leases for accounting purposes and, therefore, have been recorded at the present value of their future minimum lease payments as of the inception date. Assets acquired through capital leases are as follows:

Under the City's Home Rule Charter, there is no legal debt limit. The various bond indentures contain significant limitations and restrictions on annual debt service requirements, minimum amounts to be maintained in various bond reserve funds, and minimum revenue bond coverages. 50

CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012

In 2012, the City issued the following refunding bonds:
$28,095,000 in general obligation highway allocation fund refunding bonds with an average interest rate of 3.90% to advance refund $30,155,000 in 2004 bonds. The refunding resulted in a cash flow differential of $3,569,569 and a net present value savings of $2,350,953. $8,090,000 in general obligation refunding bonds with an average interest rate of 2.28% to advance refund $7,960,000 of 2003 various purpose bonds. The refunding resulted in a cash flow differential of $578,762, and a net present value savings of $557,287. $38,290,000 in sanitary sewer revenue refunding bonds with an average interest rate of 3.70% to advance refund $40,345,000 in outstanding sanitary sewer revenue bonds, series 2003. The refunding resulted in a cash flow differential of $10,070,963 and a net present value savings of $5,934,216. $10,895,000 in water revenue refunding bonds with an average interest rate of 3.55% to refund $12,840,000 in outstanding water revenue bonds, series 2002. The refunding resulted in a cash flow differential of $3,119,198 and a net present value savings of $1,947,399.

Lincoln Wastewater System has entered into a loan agreement with the Nebraska Department of Environmental Quality (NDEQ) consisting of two separate contracts. Under contract 317247 the Lincoln Wastewater System has borrowed $4,808,792 to fund certain sewer system extension and sewer repairs. The System also borrowed $5,000,000 under contract 317078 to fund certain treatment facilities projects. The interest rate throughout the term of the loan is 2.0%. During the fiscal year ended August 31, 2012, project costs were incurred totaling $2,556,613, resulting in a project loan payable of $5,000,000. The Wastewater System has also entered into a $17,000,000 loan agreement with NDEQ to fund certain System improvements. The interest rate during the period of construction is 2%. After the date of initiation of operation, the interest rate will increase to 2.25%. In addition, an administrative fee of 1% will be incurred on the loan. During the fiscal year ended August 31, 2012, Lincoln Wastewater System incurred project costs totaling $7,055,103, resulting in a project loan payable of $5,683,103. The remaining available funds totaling $11,316,897 are not reflected in the financial statements. Lincoln Water System has entered into a $15,000,000 loan agreement with NDEQ. This funding is available to fund certain water system extension and water repairs. The interest rate during the period of construction is 2%. After the date of initiation of operation, the interest rate will increase to 2.25%. In addition, an administrative fee of 1% will be incurred on the loan. During the year ended August 31, 2012, project costs were incurred totaling $3,432,815, resulting in the recognition of a project loan payable of $2,628,391. The remaining available funds totaling $12,371,609 are not reflected in the financial statements.

51

CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012

Long-term bonded debt of the City is comprised of the following individual issues (in thousands of dollars):

52

CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012

Annual requirements to pay principal and interest to maturity on outstanding debt follow (in thousands of dollars):

53

CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012 Major Enterprise fund annual requirements to pay principal and interest to maturity on outstanding debt follow (in thousands of dollars):

Long-term liability activity for the year ended August 31, 2012, was as follows (in thousands of dollars):

54

CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012 Internal Service funds predominantly serve the governmental funds. Therefore, their long-term liabilities are included with the governmental activities above. Compensated absences for governmental activities are generally liquidated in the General Fund as well as various other Special Revenue and Internal Service funds where personal costs are incurred. The construction contracts are liquidated in the Street Construction fund, financed primarily with impact fee collections. The claims and judgments liability will generally be liquidated through the Citys Insurance Revolving Internal Service Fund, which will finance the payment of those claims by charging other funds based on managements assessment of the relative insurance risk that should be assumed by individual funds. The net pension obligation will be liquidated through the Police & Fire Pension Contributions Special Revenue Fund with financing provided by an annual property tax levy. The net OPEB obligation for an implicit rate subsidy will be liquidated with those governmental funds where personal insurance costs are incurred. Long-term liability activity for the major enterprise funds for the year ended August 31, 2012, was as follows (in thousands of dollars):

DEVELOPER PURCHASED TAX INCREMENT FINANCING NOTES AND BONDS At August 31, 2012, $3,520,755 of developer purchased tax increment financing notes and bonds were outstanding. Developer purchased tax increment financing allows the City to create special districts to enable public/private improvements within those districts that will generate public/private-sector development. For a period of 15 years, the tax base is frozen at the predevelopment level, and taxes generated from the incremental increases in assessed value are remitted to the developer. The agreements between the City and developer expressly limit the Citys commitment for debt repayment to the incremental tax collected during the 15-year period. At the end of the 15-year period, the tax jurisdiction 55

CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012 collects on the increased property values. The related tax increment districts are not component units of the City, therefore, the City is not liable for the outstanding debt. The Citys responsibility for this liability is limited only to remittance of paid taxes, thus these notes and bonds are not reflected in the Citys financial statements. CONDUIT DEBT On January 26, 2012, the City issued $19,815,000 of Educational Facilities Revenue and Refunding Bonds for the purpose of paying the cost of acquiring, constructing, equipping and furnishing improvements to Nebraska Wesleyan Universitys (NWU) higher education facilities and refinancing certain outstanding indebtedness of NWU. The Bonds are limited obligations of the City and are payable solely from payments to be made by NWU pursuant to a loan agreement dated January 1, 2012, by and between the City and NWU. The Bonds shall not be a charge against the Citys general credit or taxing powers. The Bonds shall never constitute an indebtedness of the City within the meaning of any constitutional provision or statutory limitation and shall never constitute or give rise to a pecuniary liability of the City, thus these bonds are not reflected in the Citys financial statements. (10) RECONCILIATION OF BUDGET BASIS TO GAAP Amounts presented on a non-GAAP budget basis of accounting differ from those presented in accordance with GAAP due to the treatment afforded accruals, encumbrances, funds for which budget and reporting structures differ, and funds for which legally adopted annual budgets are not established. A reconciliation for the year ended August 31, 2012, which discloses the nature and amount of the adjustments necessary to convert the actual GAAP data to the budgetary basis, is presented below: Street General Construction Fund Fund Net Change in Fund Balances: Balance on a GAAP basis $ 7,347,437 (4,654,384) Basis differences (accruals) occur because the cash basis of accounting used for budgeting differs from the modified accrual basis of accounting prescribed for governmental funds. (832,851) (51,600) Perspective differences occur when the structure used for budgeting differs from the fund structure used for financial reporting. Amount budgeted on a project basis. Balance on a budget basis (11) DEFICIT NET ASSETS The following funds had a net asset or fund balance deficit as of August 31, 2012: Special Revenue - Impact Fees Fund Enterprise Pinnacle Bank Arena Fund Internal Service - Engineering Revolving Fund Internal Service - Communication Services Fund $ (191,814) (18,851) (449,739) (12,913)

(339,439) $ 6,175,147

24,290,239 19,584,255

The Impact Fees Fund deficit is expected to be reduced through future fee collections. The Pinnacle Bank Arena Fund was recently created to manage the operation of a new Arena scheduled to open in 2013. The Fund is yet to receive any revenue. 56

CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012

The Engineering Revolving Fund is evaluating various means to reduce expenses and improve revenue collections affected by staffing levels, overhead costs, billing practices, and intra-City services reimbursements. The Communication Service Fund is currently adjusting their billing process and when completed is expected to reduce the deficit. (12) EXCESSES OF EXPENDITURES OVER APPROPRIATIONS The following fund had expenditures for which there were no appropriations: General Fund Street Lighting Debt Service (13) EMPLOYEES' RETIREMENT PLANS The employees of the City are covered by several retirement plans. Article II Section 3 of the Lincoln Charter assigns the authority to establish and amend benefit provisions of the various plans to the City Council. The Police and Fire Department Plan (PFDP) is administered by the City and is included in the Fiduciary Fund type. All other plans are administered by outside trustees and are not included in the City's basic financial statements. POLICE AND FIRE PENSION Plan Description PFDP is a single-employer defined benefit pension plan administered by the City of Lincoln. PFDP provides retirement, disability, and death benefits to plan members and beneficiaries. PFDP recognizes plan member contributions in the period in which they are due. Employer contributions are recognized when due and the City has made a formal commitment to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan. Costof-living adjustments are provided to members and beneficiaries in accordance with the plan document. The City does not issue a separate report that includes financial statements and required supplementary information for PFDP. The City has established the Deferred Retirement Option Plan (DROP) for police and fire pension members. The DROP program allows a member to retire for pension purposes, but to continue working. The member receives a paycheck and the members monthly pension benefit is deposited into the members DROP account. At the end of five years, or anytime before five years, the member must retirein-fact. Contributions to the pension are eliminated at the beginning of the DROP period. Pension benefits are set, and will not be increased because of raises, promotions, increased years of service or pension enhancements. When a member retires-in-fact, their monthly pension benefit will be paid directly to them and the member will have access to the funds in their DROP account. Membership of the pension plan consisted of the following at August 31, 2012, the date of the latest actuarial valuation:

$ 2,048,947 52,667

57

CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012 Funding Policy The contribution requirements of plan members and the City are established by City Ordinance #15728 dated September 24, 1990, and may be amended by the City Council. Plan members are required to contribute between 7% and 8% of their annual covered salary based on an election made by the employee. The City is required to contribute at an actuarially determined rate; the rate for fiscal year 2012 was 15.62% of annual covered payroll. Actual contributions by the City were 16.67% of annual covered payroll. Administrative costs of PFDP are financed through investment earnings. Annual Pension Cost and Net Pension Obligation The Citys annual pension cost and net pension obligation to PFDP for the current year were as follows:

Actuarial Methods and Assumptions The annual required contribution for the current year was determined as part of the August 31, 2010, actuarial valuation using the entry age actuarial funding method. The actuarial assumptions included (a) a rate of return on the investment of present and future assets of 7.5% per year compounded annually, (b) projected salary increases of 4.25 to 8.25% per year, including wage inflation at 4.25%, and (c) the assumption that benefits will not increase after retirement. The actuarial value of assets was determined using a five year smoothed market method. The unfunded actuarial accrued liability is being amortized as a level percentage of payrolls on an open basis over a period of thirty years. Funded Status and Funding Progress As of August 31, 2012, the most recent actuarial valuation date, the plan was 77 percent funded. The actuarial accrued liability for benefits was $214,879,000, and the actuarial value of assets was $164,500,000, resulting in an unfunded actuarial accrued liability (UAAL) of $50,379,000. The covered payroll (annual payroll of active employees covered by the plan) was $36,311,000, and the ratio of the UAAL to the covered payroll was 138.7 percent. The Schedule of Funding Progress, presented as RSI following the Notes to the Financial Statements, presents multiyear trend information about whether the actuarial value of plan assets are increasing or decreasing over time relative to the actuarial accrued liability for benefits.

58

CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012 ELECTRIC SYSTEM The City owns and operates its own electric system which is included in the enterprise funds in the accompanying basic financial statements. The electric system is controlled and managed by an administrative board and is not supported by the City's general tax revenues. The electric system provides retirement benefits to its employees under its own separate plan, such benefits being funded solely from revenues derived from the operation of the electric system. A summary of the electric system plan is as follows: LES has a defined contribution retirement plan created in accordance with Internal Revenue Code Section 401(K) covering all employees upon employment; however, employees are not eligible to receive employer contributions until they have been employed six months. The plan is a straight-money purchase plan, with plan assets held, managed and administered by a trustee. The LES administrative board of directors authorized this plan and related contribution requirements. LES' contribution is equal to 200% of the employees' contributions, up to 5% of gross wages for employees hired prior to 1/1/11. For employees hired after 1/1/11, LES contribution is equal to 100% of employees contributions up to 10% of gross wages. Vesting of LES contributions occurs over a five-year period. Employee forfeitures are used to reduce employer contributions. Vested benefits are fully funded. For the year ended December 31, 2011, LES incurred contribution expense of approximately $3,416,000 or 9.41% of covered payroll and its employees contributed approximately $2,312,000 or 6.37% of covered payroll. DEPARTMENT DIRECTORS Directors of City departments are eligible the first of the month following the date employed to be covered by the Directors Money Purchase Plan, established by City Ordinance, and administered by an insurance company. The Plan is a defined contribution plan requiring contributions determined by the employees date of hire. The City contributes 6% to 12% and the employee contributes 0% to 6% of earned income in one calendar year. Employees covered by the Plan may also make voluntary contributions. Participant accounts are immediately 100% vested. Total and covered payroll for the year ended December 31, 2011, was $1,766,310. City contributions totaled $206,579 or 11.7% of covered payroll. There were no employee contributions made for the year ended December 31, 2011. ALL OTHER CITY EMPLOYEES All other City employees are eligible after 6 months' service and age 19 to be covered under the City's Money Purchase Pension Plan, established by City Ordinance, and administered by an insurance company. Enrollment in the program is mandatory at age 40 with 5 years service. Vesting occurs in increments between 3 and 7 years of enrollment in the plan. The Plan is a defined contribution plan requiring employees to contribute at a rate determined by the employees bargaining unit and date of hire. The City contributes between $1.29 and $2.00 for every $1.00 contributed by employees. Employee forfeitures are used to reduce employer contributions. Employees covered by the Plan may also make voluntary contributions. During the year ended December 31, 2011, total payroll was approximately $80,170,000 and covered payroll was approximately $71,464,000. City contributions totaled $8,217,613 or 11.50% of covered payroll and employee contributions totaled $4,110,263 or 5.75% of covered payroll. Employees made $53,604 in voluntary contributions for the year ended December 31, 2011.

59

CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012

(14)

OTHER POSTEMPLOYMENT BENEFITS (OPEB) Plan Description The City offers employees and their families the opportunity to continue their health care coverage when there is a qualifying event, such as retirement, that would result in a loss of coverage under the Citys plan. Each qualified beneficiary pays the entire cost of premiums for the continuous coverage. The City recognizes as OPEB the implicit rate subsidy provided to retirees when their premium is the full cost of the insurers charge for the active population. Since the retirees have higher costs, the premium they pay is not expected to cover their costs, and the difference is essentially covered by the Citys payment for active employees. The City plan is a single-employer defined benefit plan. The City does not issue a separate report that includes financial statements and required supplementary information for OPEB. Funding Policy The plan is a pay-as-you-go and therefore, is not funded. Annual OPEB cost and Net OPEB Obligation The Citys annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and to amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The net OPEB obligation as of August 31, 2012, was calculated as follows:

The Citys annual OPEB cost, the percentage of annual OPEB costs contributed and the net OPEB obligation are as follows:

Funded Status and Funding Progress As of September 1, 2011, the most recent actuarial valuation date, the plan was zero percent funded. The actuarial liability for benefits was $24,902,000 and the actuarial value of assets was zero, resulting in an unfunded actuarial accrued liability (UAAL) of $24,902,000. Annual covered payroll was approximately $118,498,000, and the ratio of the UAAL to the covered payroll was 21.0%. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trends. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about 60

CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012 the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statement, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the September 1, 2011 actuarial valuation, the projected unit credit cost method was used. The actuarial assumptions included a 4.5% discount rate and an annual healthcare cost trend rate of 9.0% initially, reduced by decrements to an ultimate rate of 5.8% for 2020 and beyond. The general inflation rate used for derivation of these calculations is 2.5%. Participation assumptions include 60% of eligible civilian members and 40% of eligible Fire/Police members electing coverage, with 30% and 20% participation assumed for civilian and Fire/Police spouses, respectively. The plans unfunded actuarial accrued liability is being amortized as a level dollar amount on an open basis over a period of thirty years. PEHP Defined Contribution Plan The City has a defined contribution Post Employment Health Plan (PEHP) administered by Nationwide Retirement Solutions. The purpose of the PEHP plan is to provide reimbursement of qualifying health care and medical insurance premium expenses for employees upon separation from employment. Terms for eligibility and contribution rates are specified in the Citys various collective bargaining agreements. Individual employee accounts consist of employer contributions, investment returns and any forfeiture allocations. Current employer contributions range from $18-$50 per pay period based on union contracts. Current year contributions totaled approximately $1,274,000. (15) PROPERTY TAXES The Home Rule Charter of the City imposes a tax ceiling for general revenue purposes. The City tax ceiling was established by using the September 1, 1966, City dollar tax limit as an initial tax limit, and increasing that tax limit each year following 1966 by 7% so that in each fiscal year thereafter the amount of the City tax limit shall be the amount of the City tax limit for the previous year plus 7% thereof. In addition, the City has the power to levy taxes each year sufficient to pay any judgment existing against the City, the interest on bonded debt, and the principal on bonded debt maturing during the fiscal year or within 6 months thereafter, as well as taxes authorized by state law. The 2011 tax levy, for the 2011-2012 fiscal year, was $100,174,806 below the legal limit, with a tax rate per $100 valuation of $0.3158. The assessed value upon which the 2011 levy was based was $15,900,828,813. The tax levies for all political subdivisions in Lancaster County are certified by the County Board on or before October 15th. Real estate taxes are due on December 31st and attach as an enforceable lien on property on January 1st following the levy date and become delinquent in two equal installments on April 1st and August 1st. Personal property taxes are due December 31st and become delinquent on April 1st and August 1st following the levy date. Delinquent taxes bear 14% interest. Within the government-wide financial statements, property taxes are recognized as revenue in the year for which they are levied. Property taxes levied for 2011-2012 are recorded as revenue in the fund financial statements when expected to be collected within 60 days after August 31, 2012. Prior-year levies were recorded using these same principles, and remaining receivables are re-evaluated annually. Property taxes expected to be collected after 60 days are recorded as deferred revenue on the fund balance sheets.

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CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012 The City-owned electric utility is required by City Charter to make payments in lieu of taxes, aggregating 5% of its gross retail operating revenues derived from within the city limits of incorporated cities and towns served. (16) RISK MANAGEMENT The City is exposed to various risks of loss related to torts; theft of, damage to, or destruction of assets; errors or omissions; injuries to employees and the public; or acts of God. All risk management activities are accounted for in the Insurance Revolving Fund, an internal service fund, and administered through the Risk Management Division. For the year ended August 31, 2012, the City had a self-insured retention for workers' compensation exposures up to $800,000 per individual; law enforcement liability, general liability, public officials liability, public transportation liability, medical professional liability, and auto liability exposures up to $250,000 per occurrence; building and contents property exposures up to $50,000 per occurrence; health care benefits with $150,000 unlimited stop loss; dental benefits; and employee long-term disability benefits. The City also obtained excess liability insurance coverage in the current year. Workers' compensation was covered by a policy that provided statutory limits above the City's retention of $800,000 per individual. Law enforcement, general, public officials, public transportation, medical professional, and auto liabilities were covered by policies that provided limits of $6 million per occurrence with a $12 million annual aggregate. Health had excess loss indemnity coverage above $150,000 per claim with unlimited coverage. The Nebraska Political Tort Claims Act limits the City's liability for tort claims to $1 million per individual and $5 million per occurrence. There were no significant insurance recoveries in the current year, and settled claims have not exceeded coverage in any of the past three fiscal years. The City annually retains the services of independent actuaries to analyze the self-insured workers' compensation, general liability, public transportation liability, law enforcement liability, auto liability, and long-term disability exposures. Such analysis has been used to assist the City with its financial planning and management of the self-insurance program. Included in the specific objectives of the studies were to: Estimate the outstanding liabilities for the current fiscal year ended August 31, Forecast ultimate incurred losses and incurred but not reported losses for future years, and Estimate the required funding level for the City's self-insured liabilities.

The City funds its self-insurance program on an "incurred loss" basis. The governmental and proprietary funds pay annual premium amounts, based on past experience of incurred losses, to the Insurance Revolving Fund. Claim liabilities of $10,303,038 were recorded at August 31, 2012. Excluding medical care claims approximating $1,688,000, the remaining liability is the actuarially estimated amount of claims based on an estimate of ultimate incurred and incurred but not reported losses as of that date and is calculated considering the effects of inflation, recent claim settlement trends including frequency and amount of pay-outs, and other economic and social factors. The claims liability estimate also includes amounts for incremental claim adjustment expenses related to specific claims and other claim adjustment expenses regardless of their allocation to specific claims. These liabilities have been discounted using a .35% discount rate. The City has purchased no annuity contracts in the current fiscal year to resolve City of Lincoln claims. The following is a summary of the changes in the estimated claims liability for the years ended August 31, 2012 and 2011:

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CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012

LINCOLN ELECTRIC SYSTEM LES has a self-funded health insurance program with claims processed by a third party administrator on behalf of the utility. As part of the plan, a reinsurance policy has been purchased which covers claims in excess of $150,000 per individual. Total accrual and payment history is shown below:

* Beginning in 2011 this value includes $382,000 statutory reserve. (17) COMMITMENTS AND CONTINGENCIES GENERAL The City participates in a number of federally assisted grant programs. Federal financial assistance programs are subject to financial and compliance audits. The amount of expenditures, if any, which may be disallowed by the granting agencies is not determinable at this time; however, City officials do not believe that such amounts would be significant. At August 31, 2012, approximately 96% of the full-time, regular Citys employees are represented by a Union. The existing union contracts expired in August 2012. All future labor contracts involving City employees will be negotiated to cover, at a minimum, a two-year period coinciding with the new biennial budget process. The City is a defendant in a number of lawsuits and claims in its normal course of operations. Management is currently of the opinion that ultimate settlement of such lawsuits and claims will not have a materially adverse effect on the financial statements. The City has been identified as a potentially responsible party (PRP) or equivalent status in relation to several sites with environmental remediation activities. Management currently believes that the liability of the City in connection with these activities will be immaterial. However, the ultimate cost will depend on the extent of remediation required. Management does not believe that changes in these cost estimates will have a materially adverse effect on the financial statements. 63

CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012 The City of Lincoln owns a solid waste disposal area which discontinued operations in 1990, but still requires certain closure and postclosure care, including the construction of final cover, monitoring of groundwater conditions and landfill gas migration, and general site maintenance. While accrual of closure and postclosure care costs has been reflected in the financial statements in the current year, unanticipated corrective action costs related to landfill gas migration or groundwater contamination, if identified through current monitoring procedures, may be recorded once these costs can be reasonably estimated. The City has entered into various agreements with developers to build infrastructure for new developments. These commitments are included in the Citys current 6-year capital improvement program or depending on when the commitment is due, will be included in the Citys future capital improvement program. As of August 31, 2012, the Citys commitment to developers is estimated to be approximately $55,000,000. STREET CONSTRUCTION PROJECTS The Citys Street Construction Fund has commitments under major construction contracts in progress of approximately $4,800,000 as of August 31, 2012, which will be financed primarily through highway user fees, bond proceeds, federal and state grants, and developer contributions. WEST HAYMARKET JOINT PUBLIC AGENCY The West Haymarket JPA Fund has commitments under major construction contracts in progress of approximately $135,000,000 as of August 31, 2012. PARKING FACILITIES The Lincoln Parking System has commitments under major contracts in progress of approximately $1,200,000 as of August 31, 2012. LINCOLN WASTEWATER SYSTEM The Lincoln Wastewater System has commitments under major construction contracts in progress of approximately $1,700,000 as of August 31, 2012. LINCOLN WATER SYSTEM The Lincoln Water System has commitments under major construction contracts in progress of approximately $3,600,000 as of August 31, 2012. LINCOLN ELECTRIC SYSTEM Participation Contracts with NPPD LES has participating interests in the output of two existing NPPD power plants, a thirty percent (68 MW) and eight percent (109 MW) entitlement to the output of the Sheldon Station Power Plant (nominally rated 225 MW coal plant) and Gerald Gentleman Station Power Plant (nominally rated 1,268 MW coal plant), respectively. LES is responsible for its respective participating interests in the two facilities capital additions and improvements. LESs share of debt service payments necessary to retire the respective participating interests of principal and interest on bonds issued by NPPD for the facilities was approximately $6,800,000 in 2011. LES recognizes its share of capital acquisition costs and debt service payments as power costs in the period the costs are billed with the exception of costs approved for deferral under ASC 980. Fixed cost payments under the agreements are on a participation basis whether or not such plants are operating or operable. LES recognized expense for its share of the total fixed costs of approximately $11,400,000 in 2011. The participation contracts continue until the facilities are removed from commercial operation or the final maturity occurs on the related debt incurred by NPPD to finance the facilities, whichever occurs last. The 64

CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012 estimated fixed cost payments to NPPD under these contracts, including capital additions and improvements, debt service payments and fixed costs, and credits aggregate approximately $19,400,000, $25,100,000, $24,200,000, $21,600,000, and $22,100,000, respectively, in each of the five years subsequent to December 31, 2011. Laramie River Station (LRS) LES is a 12.76 percent co-owner of the Missouri Basin Power Project, which includes LRS, a three-unit, 1,650 MW coal-fired generating station in eastern Wyoming and a related transmission system. Costs, net of accumulated depreciation, associated with LRS of approximately $19,400,000 are reflected in utility plant at December 31, 2011. LES has a participation power sales agreement with the County of Los Alamos, New Mexico (the County) whereby the County purchases from LES 10 MW of LES's capacity interest in LRS. The agreement provides for the County to pay LES monthly fixed payments for the repayment of debt service. The amount is subject to change each July 1 based on debt costs of LES relative to the current market rates, until termination of the agreement. The agreement remains in effect until either the final maturity occurs on any LRS related debt, LRS is removed from commercial operation, or the County gives LES sixmonths notice to terminate the agreement. During 2011, LES billed the County approximately $3,100,000 for demand and energy charges. The LRS project participants, including LES, filed a rate case in 2004 with the federal Surface Transportation Board (STB) challenging the reasonableness of the freight rates from the Burlington Northern Santa Fe (BNSF) railroad for coal deliveries to LRS. In early 2009 the STB issued its decision and awarded the LRS project participants a favorable decision estimated by the STB at approximately $345 million in rate relief. The STB awarded $119 million to the LRS participants for past freight overcharges plus an expectation of present value rate benefits of approximately $245 million due to a new tariff the STB ordered to be charged through 2024. BNSF remitted $15,000,000 to LES, which has been escrowed pending an appeal filed by BNSF. Walter Scott Energy Center (WS4) MidAmerican Energys Walter Scott Energy Center includes the following units: Unit #1 a 1954 coalfired unit built with 43 MW capacity, Unit #2 a 1958 coal-fired unit built with 88 MW capacity, Unit #3 a 1979 coal-fired unit built with 675 MW capacity, and Unit #4 - a supercritical technology, coal-fired 790 MW unit that became commercial in June, 2007, as well as the associated common equipment and inventories. LES maintains ownership interest in 12.6 percent or 105 MW of Unit #4. In order to minimize unit outage risk, LES has executed a power purchase and sales agreement with MidAmerican Energy. Under this agreement, beginning in 2009, LES will schedule 50 MW of Unit #3 and 55 MW of Unit #4. This twenty year unit agreement can be extended through mutual agreement of the parties. LES is responsible for the operation and maintenance expense and maintains a fuel inventory at the plant site. LES issued debt in conjunction with the construction of Unit #4 and has capitalized these costs plus interest. (18) LANDFILL CLOSURE AND POSTCLOSURE CARE COSTS The City of Lincoln currently owns and operates both a municipal solid waste landfill and a construction and demolition debris landfill. State and federal laws require the City to close the landfills once capacity is reached and to monitor and maintain the site for thirty subsequent years on the municipal solid waste landfill and five subsequent years on the construction and demolition debris landfill. Although certain closure and postclosure care costs will be paid only near or after the date that the landfills stop accepting waste, the City reports a portion of these closure and postclosure care costs as an operating expense in each period based on landfill capacity used as of each statement of net assets date. At August 31, 2012, the City had incurred a liability of approximately $10,534,000 for the municipal solid waste landfill which represents the amount of costs reported to date based on the approximately 50 percent of landfill capacity used to date. The remaining estimated liability for these costs is approximately $10.4 65

CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012 million, which will be recognized as the remaining capacity is used (estimated to be approximately 25 years). As of August 31, 2012, the City had incurred a liability of approximately $500,000 for the construction and demolition debris landfill which represents the amount of costs reported to date based on the approximately 50 percent of landfill capacity used to date. The remaining estimated liability for these costs is approximately $494,000, which will be recognized as the remaining capacity is used (estimated to be approximately 18 years). The estimated costs of closure and postclosure care, as determined by an independent engineering consultant, are subject to changes including the effects of inflation, revision of laws, changes in technology, actual sequence of landfill development and closure, and other variables. The City of Lincoln, in a review by the Nebraska Department of Environmental Quality (NDEQ), has demonstrated compliance with the financial assurance requirements as specified in Title 132 - Integrated Solid Waste Management Regulations, through the Local Government Financial Test. The City of Lincoln also owns a solid waste disposal area that discontinued operations in 1990. Although exempt from the U.S. Environmental Protection Agency Solid Waste Disposal Facility Criteria issued October 9, 1991, the City must still adhere to certain closure and postclosure care requirements under prior legislation, including the construction of final cover, monitoring of ground water conditions and landfill gas migration, and general site maintenance. At August 31, 2012, a liability for closure and postclosure care costs is recorded in the amount of approximately $4,402,000, which is based on appropriations identified in the Citys capital improvement projects budgeting process. If any unanticipated corrective action costs related to landfill gas migration or groundwater contamination are identified through current monitoring procedures, then an additional accrued liability will be recorded once these costs can be reasonably estimated.

(19 )

FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by Lincoln Water System and Lincoln Wastewater System to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash, accounts receivable and accounts payable The carrying amount approximates fair value because of the short maturity of these instruments. Long-term debt The estimated fair value of the long-term debt is approximately $75,388,000 for the Water System and $134,953,000 for the Wastewater System based on borrowing rates currently available as of August 31, 2012. Investments The fair values of investments held directly by the funds are based on quoted market prices. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

(20)

SEGMENT INFORMATION The City has issued revenue bonds and other debt instruments to finance capital construction and acquisitions for both the Urban Development and Public Works/Utilities Departments. The Parking Facilities Division of the Urban Development Department operates the Citys downtown parking garages and is accounted for in the Parking Facilities Fund. The Solid Waste Operations Section of the Public Works/Utilities Department operates the Citys solid waste disposal sites, yard waste composting facility,

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CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012 and re-cycling drop-off program. Summary financial information for these divisions as of and for the year ended August 31, 2012, is presented as follows:

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CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012

(21)

PLEDGED REVENUES The City has pledged future revenues derived from the operation of the Lincoln Wastewater System, net of operating and maintenance expenses, to repay $90,991,895 in wastewater revenue bonds and loans. Proceeds provided financing for improvements to the sanitary sewer system, as well as refunding prior year debt. The debt is payable solely from the net earnings of the Wastewater System and is payable through 2034. The total principal and interest remaining to be paid on the debt is $116,861,491, with annual payments expected to require 53 percent of net revenues. Principal and interest paid for the current year and net system revenues were $6,793,014 and $12,835,302, respectively. The City has pledged future revenues derived from the operation of the Lincoln Water System, net of operating and maintenance expenses, to repay $68,943,391 in water revenue bonds and loans. Proceeds from the debt provided financing for improvements to the water supply system, as well as refunding prior water revenue bonds. The bonds are payable solely from the net earnings of the Water System and are payable through 2034. The total principal and interest remaining to be paid on the debt is $82,597,505, with annual payments expected to require 41 percent of net revenues. Principal and interest paid for the current year and net system revenues were $8,335,202 and $20,348,397, respectively. The City has pledged future revenues derived from the operation of the Lincoln Electric System, net of operating, maintenance and certain power expenses, to repay $654,580,000 in electric revenue bonds. Proceeds from the bonds provided financing for construction of additional utility plant, as well as refunding certain issues of electric revenue bonds. The bonds are payable solely from the net earnings of the Electric System and are payable through 2037. The total principal and interest remaining to be paid on the bonds is $903,568,000, with annual payments expected to require 51 percent of net revenues. Principal and interest paid for the current year and net system revenues were $46,116,000 and $92,280,000, respectively. The City has pledged future revenues derived from the operation of the Lincoln Parking System, net of operating and maintenance expenses, and amounts, if any, distributed by the State for street purposes to repay $26,585,000 in parking revenue bonds. Proceeds from the bonds provided financing for construction and improvements to the parking system, as well as refunding $5,525,000 of Series 1994A parking revenue bonds. The bonds are payable solely from the net earnings of the Parking System and are payable through 2031. The total principal and interest remaining to be paid on the bonds is $35,735,095, with annual payments expected to require 46 percent of net revenues. Principal and interest paid for the current year and net system revenues were $1,938,688 and $3,558,970, respectively. The City has pledged future revenues derived from the operation of the municipally owned solid waste management facilities, net of operating and maintenance expenses, to repay $4,000,000 in solid waste management revenue bonds. Proceeds from the bonds provided financing for improvements to the solid waste facilities. The bonds are payable solely from the net earnings of the Solid Waste System and are payable through 2021. The total principal and interest remaining to be paid on the bonds is $3,475,863, with annual payments expected to require 24 percent of net revenues. Principal and interest paid for the current year and net system revenues were $344,025 and $1,369,445 respectively.

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CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012

(22)

PUBLIC BUILDING COMMISSION In 1990, the City and the County of Lancaster, pursuant to state statute, activated a separate governmental entity denominated as the Lincoln-Lancaster County Public Building Commission. The purpose of this joint venture is to design, acquire, construct, maintain, operate, improve, remodel, remove and reconstruct, so long as its corporate existence continues, public buildings, structures, or facilities for use jointly by the City and the County. The City and the County each appoint two members to the five-member Commission, with the fifth member being appointed by the other four members. All property held or acquired by the Commission is held or acquired in the name of the City and the County for use by the Commission in its corporate capacity. The Commissions costs of operation and debt service are funded through rental payments made by the City and the County based upon their proportionate occupancy of such buildings to the extent not covered by a maximum property tax levy of 1.7 cents for each $100 of actual valuation of taxable property in the County. For the year ended August 31, 2012, the City made rental payments of approximately $2.8 million to the Commission. As of August 31, 2012, the Commission has bonds outstanding of $38,635,000 attributable to several bond issues. Certain proceeds from the bonds totaling $28,945,000 have been utilized by the Commission to acquire, construct, and/or renovate certain buildings occupied by the City and County. The Citys proportionate share of such buildings are recorded as capital assets and the corresponding debt are reflected as capital leases in the Citys financial statements. Lease payments are not recorded as capital lease payments in the Debt Service funds but rather are recorded as current expenditures in the various individual funds. Additional bond proceeds, totaling $29,000,000, have been utilized by the Commission to construct a new County-City building and to renovate the prior County-City building to be used as a Hall of Justice. It is anticipated that property tax levies by the Commission will be sufficient to meet bond principal and interest payments. Should revenues from such property tax levies not be sufficient to meet debt service requirements in any given year, the City and County would contribute the necessary payments based on their proportionate occupancy in such buildings. Such contributions are expected to be minimal and will be expensed in the appropriate funds when incurred. The Citys proportionate share of the buildings has been recorded in capital assets in accordance with the terms of the joint venture agreement regarding the ultimate transfer of assets to the City and County. In 2012, the Commission recorded a note payable of $1,670,000. The note is secured through assignment of the lease on the building purchased with the proceeds. The Citys proportionate share of the building has been recorded in capital assets in accordance with the terms of the joint venture agreement regarding the ultimate transfer of assets to the City and County. Complete separate financial statements for the Commission may be obtained at the Lincoln-Lancaster County Public Building Commission, 920 O Street, Room 203, Lincoln, Nebraska 68508.

(23)

JOINT ANTELOPE VALLEY AUTHORITY Joint Antelope Valley Authority is a joint administrative entity created April 15, 2000, in accordance with Article XV, Section 18 of the Constitution of the State of Nebraska and Nebraska Revenue Statutes Sections 13.801 through 13.827 (1997) authorizing the creation of a joint entity by public agencies. Per an interlocal cooperative agreement by and between the Board of Regents of the University of Nebraska, a public body corporate, the City of Lincoln, Nebraska, a municipal corporation, and the Lower Platte South Natural Resources District, a political subdivision of the State of Nebraska, this joint administrative entity was created to be known as Joint Antelope Valley Authority (JAVA). JAVA constitutes a separate administrative entity, exercising the public power granted by the interlocal cooperation agreement on behalf of the three aforementioned Partners to coordinate planning and implementation of a public project described in the Antelope Valley Study and the U.S. Army Corps of Engineers Antelope Creek Feasibility Study (the Project). The Project generally includes community revitalization, transportation, and drainage/flood control improvements. 69

CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012 After completion of a specific component of the Project, JAVA will transfer all real estate and improvements thereon to the appropriate individual Partner, subject to the necessary and agreed upon easements which will be conveyed to such Partner or other appropriate public or private entity, or reserved by such a Partner, for the operation, maintenance, repair, and inspection of each specific component. During the implementation period of the agreement, JAVA shall have the power and authority to acquire and condemn property rights, borrow, mortgage, pledge, or secure loans and bond its appropriated revenues and assets; provided, however, that JAVA shall have no power and authority to bond the credit or revenues of the three Partners or each Partner, or levy taxes. For the year ended August 31, 2012, total assets of JAVA reached approximately $199 million, an increase of $10 million from the prior year. The Citys equity interest increased by approximately $9.7 million to $169 million. Complete separate financial statements for JAVA may be obtained at the City of Lincoln Public Works Business Office, 555 South 10th Street, Lincoln, Nebraska 68508. (24) JOINTLY GOVERNED ORGANIZATIONS District Energy Corporation LES, in conjunction with two other governmental entities, created the District Energy Corporation (DEC) in 1989 to own, operate, maintain, and finance the heating and cooling facilities utilized by certain city, county, and state buildings. The Board of Directors of DEC is comprised of five members: two appointed by the Lancaster County Board of Commissioners, two by the Mayor of Lincoln who must be confirmed by the City Council, and one by LES. No participant has any obligation, entitlement, or residual interest. The DEC Board of Directors, under a management agreement, has appointed LES to supervise and manage the system and business affairs of DEC. LES is reimbursed for these management services based on the allocated actual costs of these services. LES also provides electric energy to DEC on an established rate schedule. The total amount of payments to LES for management, operations, and maintenance services was approximately $811,000 in 2011. The total amount of payments to LES for energy was approximately $129,000 in 2011. Nebraska Utility Corporation On May 17, 2001, LES, in conjunction with the University of Nebraska Lincoln (UNL), created the Nebraska Utility Corporation (NUCorp) to purchase, lease, construct, and finance facilities and acquire services to meet energy requirements of UNL. The Board of Directors of NUCorp is comprised of five members: three members appointed by UNL and two members appointed by LES. No participant has any obligation, entitlement, or residual interest. Operations commenced in January 2002. The NUCorp board of directors, under a twenty-year management agreement, appointed LES to supervise and manage the system and business affairs of NUCorp. LES is reimbursed for these management services based on the allocated actual costs of these services. LES also provides electric energy to NUCorp on an established rate schedule. The total payment to LES for management services was approximately $119,000 in 2011. The total amount of payments to LES for energy was approximately $9 million in 2011. (25) SUBSEQUENT EVENTS In August 2012, Lincoln Electric System issued $277,315,000 in Revenue and Refunding Bonds, Series 2012, to provide funds for the payment and redemption of certain outstanding 2002, 2003, and 2005 bonds, a portion of LES outstanding commercial paper notes, as well as to reimburse LES for prior capital improvements. Interest rates range from 1.000 to 5.000 percent. Debt service principal payments are 70

CITY OF LINCOLN, NEBRASKA Notes to the Financial Statements August 31, 2012 scheduled annually on the serial bonds at amounts that range from $10,970,000 to $20,230,000, with $30,165,000 of term bonds due in 2037. In October 2012, the City issued $10,000,000 of Certificates of Participation, Series 2012, to provide funds for street light improvements, communication equipment, and remodeling, renovation, equipping and furnishing the Municipal Services Center. The interest rate is 3.000 percent and the final maturity is June 2027. Debt service principal payments are scheduled annually at amounts that range from $480,000 to $1,270,000. In December 2012, the City issued $12,080,000 of Parking Revenue and Refunding Bonds, Series 2012, to provide funds for the payment and redemption of the outstanding 2001 Parking Bonds, and to pay a portion of the costs of constructing a new Haymarket parking garage. The interest rates on the bonds range from .400 to 4.000 percent and the final maturity is August 2032. Debt service principal payments are scheduled annually at amounts that range from $435,000 to $810,000.

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CITY OF LINCOLN, NEBRASKA

Required Supplementary Information August 31, 2012

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APPENDIX C

BOOK-ENTRY SYSTEM

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BOOK-ENTRY SYSTEM The Bonds are available in book-entry form and beneficial ownership interest therein may be purchased in the principal amount of $5,000 or any integral multiple thereof. Purchasers of the Bonds will not receive certificates representing their interests in the Bonds. The following information concerning The Depository Trust Company (DTC), New York, New York and DTCs book-entry system has been obtained from sources the City believes to be reliable. However, the City takes no responsibility as to the accuracy or completeness thereof and neither the Indirect Participants nor the Beneficial Owners should rely on the following information with respect to such matters, but should instead confirm the same with DTC or the Direct Participants, as the case may be. There can be no assurance that DTC will abide by its procedures or that such procedures will not be changed from time to time. DTC will act as securities depository for the Bonds. The Bonds will be issued as fully registered securities registered in the name of Cede & Co. (DTCs partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the worlds largest depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money market instruments from over 100 countries that DTCs participants (Direct Participants) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly owned subsidiary of The Depository Trust & Clearing Corporation (DTCC). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (Indirect Participants). DTC has a Standard & Poors rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTCs records. The ownership interest of each actual purchaser of each Bonds (Beneficial Owner) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTCs partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of the Bonds with DTC and their registration in the name of Cede & Co. or such

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other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTCs records reflect only the identity of the Direct Participants to whose accounts such Certificates are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bonds documents. For example, Beneficial Owners of the Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed, DTCs practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTCs Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Payment of principal or redemption price of and interest on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTCs practice is to credit Direct Participants accounts, upon DTCs receipt of funds and corresponding detailed information from the City or the Registrar, on the payment date in accordance with their respective holdings shown on DTCs records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, its nominee, the Registrar, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal or redemption price of and interest on the Bonds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Registrar. Disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the City or the Registrar. Under such circumstances, in the event that a successor securities depository is not obtained, Bonds are required to be printed and delivered. The City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bonds will be printed, registered in the name of DTCs partnership nominee, Cede & Co. (or such other name as may be requested by an authorized representative of DTC), and delivered to DTC (or a successor securities depository), to be held by it as securities depository for Direct Participants. If, however, the system of book-entry transfers has been discontinued and a Direct Participant has elected to withdraw its Bonds from DTC (or such successor securities depository), Bonds may be delivered to Beneficial Owners upon compliance with DTCs withdrawal procedures then in effect.

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APPENDIX D

OPINION OF BOND COUNSEL

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______________, 2013

Mayor and City Council of the City of Lincoln, Nebraska Lincoln, Nebraska $25,000,000 THE CITY OF LINCOLN, NEBRASKA LIMITED TAX GENERAL OBLIGATION ARENA BONDS SERIES 2013 Ladies and Gentlemen: We have acted as Bond Counsel in connection with the issuance and sale by the City of Lincoln, Nebraska (the City), a city of the primary class in and a municipal corporation and body politic and corporate of the State of Nebraska (the State), of the above-captioned bonds (the Bonds). The Bonds recite that they have been issued by the City under and pursuant to and in full conformity with the Constitution and laws of the State, including, but not limited to, the Convention Center Facility Financing Assistance Act, Sections 13-2601 et seq., Reissue Revised Statutes of Nebraska, as amended (the Act), the Home Rule Charter of the City (the Charter), including, but not limited to, Article IX, Sections 39 through 43 thereof (the Charter Provisions), and proceedings duly had and Bond Ordinance No. 19843 duly adopted by the Council of the City (the City Council) and approved by the Mayor of the City (the Ordinance), for the purpose of providing a portion of the costs relating to the acquisition, construction, equipping and furnishing of a sports/entertainment arena and related facilities and improvements (the Project). We have examined the Constitution of the State, the Act, the Charter Provisions, a certified copy of the Ordinance and other proceedings of the City Council relating to the authorization and issuance of the Bonds, rulings and judicial decisions, and such other documents, records, certificates and opinions as we have deemed relevant and necessary in rendering this opinion. We have assumed that the City and others will comply with the covenants, agreements, representations and certifications included in the items examined. As to questions of fact material to our opinion, we have relied upon the certifications and representations of public officials and others in the items examined without undertaking to verify the same by independent investigation. From such examination, we are of the opinion that: 1. The Ordinance has been duly adopted by the City Council and approved by the Mayor of the City and constitutes the valid and binding obligation of the City, enforceable against the City in accordance with its terms. 2. The Bonds have been authorized and issued in accordance with the Constitution and statutes of the State, including the Act, and the Charter of the City, including the Charter Provisions, and constitute valid and legally binding obligations of the City. 3. The City has the power to pledge, and in the Ordinance has pledged, the income, proceeds and revenue of the Project and the revenue and income of the City, including its sales, use, occupation and property tax revenues, the Citys fees or receipts and appropriations from the State received under the Act or other State source as security for the Bonds, to the extent legally available and appropriated for such purposes, to the payment of the Bonds and the interest thereon. 4. The City has the power and is obligated to levy ad valorem taxes for the payment of the Bonds and the interest thereon upon all the taxable property within the City, subject to statutory limitations.

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We express no opinion regarding any federal, State or other tax consequences to holders of the Bonds. The obligations of the City, and the enforceability thereof, with respect to the Bonds, the Ordinance and the other documents described above are subject, in part, to the provisions of the bankruptcy laws of the United States of America and to other applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors rights generally, now or hereafter in effect. Certain of such obligations, and enforcement thereof, are also subject to general equity principles, which may limit the specific enforcement of certain remedies but which do not affect the validity of such documents. We express no opinion herein as to any matter not specifically set forth above. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Accordingly, this opinion speaks only as of its date and is not intended to, and may not, be relied upon in connection with any such actions, events or matters. This opinion is solely for the benefit of the addressees hereof in connection with the original issuance of the Bonds and may not be relied upon by any other person or for any other purpose without our written consent. Very truly yours,

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APPENDIX E

OPINION OF SPECIAL TAX COUNSEL

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[DATE OF DELIVERY] The City of Lincoln, Nebraska Lincoln, Nebraska Ameritas Investment Corp. Lincoln, Nebraska Re: $25,000,000 The City of Lincoln, Nebraska Limited Tax General Obligation Arena Bonds, Series 2013 Ladies and Gentlemen: We have acted as special tax counsel to The City of Lincoln, Nebraska, (the Issuer) in connection with the issuance of the above-captioned bonds (the Bonds), which are being issued to finance a portion of the costs relating to the acquisition, construction, equipping and furnishing of a sports/entertainment arena and related facilities and improvements (the Project). We have also acted as bond counsel in connection with other bonds issued to finance a portion of the Project. In such capacity as special tax counsel with respect to the Bonds, we have examined the law and the certified proceedings, certifications and other documents that we deem necessary to render this opinion, including, without limitation, the Federal Tax Certificate executed and delivered by the Issuer in connection with the issuance of the Bonds. Regarding questions of fact material to our opinion, we have relied on the certified proceedings and other certifications of public officials and others furnished to us without undertaking to verify them by independent investigation. We have also relied on the legal opinion of Kutak Rock LLP, bond counsel to the Issuer in connection with the issuance of the Bonds, dated the date of this opinion, regarding certain matters, including the status of the Bonds as the valid and binding obligations of the Issuer. Based upon and subject to the foregoing review, assumptions and reliance, we are of the opinion, under existing law, that the interest on the Bonds (a) is excludable from gross income for federal income tax purposes, (b) is exempt from income taxation by the State of Nebraska, and (c) is not an item of tax preference for purposes of computing the federal alternative minimum tax imposed on individuals and corporations, but is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. The opinions set forth in this paragraph are subject to the condition that the Issuer complies with all requirements of the Internal Revenue Code of 1986, as amended (the Code) that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excludable from gross income for federal income tax purposes. The Issuer has covenanted to comply with all of these requirements. Failure to comply with certain of these requirements may cause the interest on the Bonds to be included in gross income for federal and State of Nebraska income tax purposes retroactive to the date of issuance of the Bonds. The Bonds have not been designated as qualified tax-exempt obligations within the meaning of Section 265(b)(3) of the Code. We express no opinion regarding the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Bonds. Further, we express no opinion regarding tax consequences arising with respect to the Bonds other than as expressly set forth in this opinion. The rights of the owners of the Bonds and the enforceability of the Bonds may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors rights generally and by equitable principles, whether considered at law or in equity. This opinion is given as of its date, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may come to our attention or any changes in law that may occur after the date of this opinion. Very truly yours,

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